UK GDP shrinks more than expected in July

The UK economy contracted more than expected in July as strikes and poor weather took their toll, according to figures released on Wednesday by the Office for National Statistics.

GDP shrank 0.5% following 0.5% growth in June, and versus consensus expectations of a 0.2% decline.

Services output fell 0.5% following 0.2% growth in June, and was the main contributor to the fall in GDP in July.

Meanwhile, production output was down 0.7% in July following 1.8% growth the month before, and output in the construction sector declined 0.5% after growth of 1.6% in June.

ONS director of economic statistics Darren Morgan said: "In July, industrial action by healthcare workers and teachers negatively impacted services and it was a weaker month for construction and retail due to the poor weather.

"Manufacturing also fell back following its rebound from the effect of May's extra Bank Holiday.

"A busy schedule of sporting events and increased theme park visits provided a slight boost."

Paul Dales, chief UK economist at Capital Economics, said: "The 0.5% m/m fall in real GDP in July…could possibly mean that the mild recession we have been expecting has begun.

"Even so, with wage growth still uncomfortably strong, we suspect the Bank of England will still raise interest rates one final time next week, from 5.25% to 5.50%."