Fears Of A UK Recession Subside With Surprise Economic Growth In July

A stronger than expected and across-the-board rise of 0.3 per cent in economic activity in the month of July has helped recede the fears of a recession, the first in a decade,  that was looming on the British economy.

Following a dismal spring and early summer, the first month of the third quarter saw growth being registered in all sectors of the British economy, shows data from the Office for National Statistics.

Technically an economy would be considered to go into recession if there is a contraction of gross domestic product for two consecutive quarters. This had raised fears that the UK economy could be slipping into a technical recession. In the three months ending June, UK economy recorded a decline of 0.2 per cent, and because Brexit uncertainty still loomed large, analysts anticipated a contraction in the next quarter too.

However there was a 0.3 per cent growth in the in the services sector of the country in July and because this sector accounts for almost 80 per cent of the country’s GDP, therefore analysts are now upbeat that the economy could avoid a recession. This was compounded by a growth in the manufacturing and construction sectors which were struggling and growth of 0.3 per cent and 0.5 per cent were reported for the sectors respectively.

However, not much should be inferred from the data of single month, warned the ONS, which also noted that there was virtually no growth in the economy in the three months to July.

“Following a flat reading in June this is a positive surprise and the accompanying rise in manufacturing production is also pleasing. While the figures are far from stellar, after a contraction in the second quarter the chances that we see a negative GDP print in the third have now dropped significantly, meaning that a technical recession will likely be avoided,” said David Cheetham, the chief market analyst at XTB online trading.

All through 2019, the British economy has been dominated by the Brexit uncertainty so far.

While the first date of Brexit, on March 29 this year, approached, companies piled up stocks of goods in the first quarter of the year. That resulted in a temporary boost because of that in the British economy. However that enthusiasm was muted because of the delay in Brexit because that meant that the companies had ot run down the inventories that they had gathered by over stocking.

Sir Charlie Bean, a former deputy governor of the Bank of England, said he thought it “highly unlikely” that there would be a continued contraction in the UK economy in the third quarter, which means that the UYK economy could avoid a recession just before Brexit.

The 0.3 per cent growth in the service sector in July was driven by a 1.1 per cent monthly growth in transport and storage output and a 1.6 per cent gain in output of admin and support services, said Paul Dales, the chief UK economist at Capital Economics.

“That and the strong 2.5% and 2.7% monthly rises in the value of exports and imports respectively in July could be the first real signs that businesses are bringing activity forward ahead of the possible 31 October Brexit deadline,” Dales said.

(Adapted from TheGuardian.com)

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