The United Kingdom’s GDP fell more than expected, following the announcement of an increase in unemployment but also an increase in wages.
UK GDP fell 0.5% in July, more than expected and hit by strikes in the health and education sectors and unfavorable weather which hurt retail trade.
It comes after the economy grew by 0.5% in June, the Office for National Statistics (ONS) said on Wednesday.
“Our initial estimate for July shows that GDP has fallen,” said Darren Morgan, director of economic statistics at the ONS, in a message on X (formerly Twitter). “However, the overall picture looks more positive, with economic growth in the services, manufacturing and construction sectors over the past three months.”
Chancellor of the Exchequer Jeremy Hunt has reiterated the government’s plan to halve inflation to deliver “the sustainable growth and pay rises the country needs”.
The NSO announced Tuesday that if wages in the United Kingdom are increasing, by 7.8%, so is unemployment, which reached 4.3% between May and July.
The Confederation of British Industry said wage increases and falling energy prices from their peak following Russia’s large-scale invasion of Ukraine should help households to avoid a recession.
He warned, however, that a loss of economic momentum in the third quarter, as described by businesses today, could keep the economy slowing.
As well as the slowing economy and rising unemployment rate, the UK is also suffering from the highest inflation rate in the G7 at 6.8%, fueling fears that the Bank of England will continue to tighten its monetary policy.
Sterling lost ground on Wednesday after the release of GDP figures, falling 0.36% to $1.2449 around 0700 GMT.
The UK is not alone in its negative outlook. Across the Channel, Brussels announced Monday that the EU is now expected to see modest growth of 0.8% this year, down slightly from the 1% projected in the spring, and 1.4% in 2024.
The euro zone will experience rates degraded in the same way: 0.8% in 2023 (compared to 1.1% in the previous estimate) and 1.3% in 2024.