The UK economy underperformed expectations, as GDP shrunk by 0.5% in July. The latest figures, released today by the ONS, marks the largest contraction in seven months. Economists had expected the figure to come in around -0.2%. July saw output fall in all three main sectors: services were down 0.5%, production was down 0.7% and construction fell by 0.5%. Rising interest rates, poor weather and strikes all played a role in the figures. It should give the Bank of England pause for thought ahead of their next interest rates decision…
In the longer-term, the picture isn’t so bleak. In the three months to July, growth increased by 0.2%. However, the latest numbers don’t look good for Rishi Sunak and his pledge to grow the economy, especially if more interest rate rises are on the cards with an election looming. He can’t rely on another upward revision to save him now.

The European Commission has cut its growth forecast for the Eurozone this year, after admitting the sclerotic German economy is “significantly weaker” than previously thought – they expect it to shrink by 0.4% this year – and its “big deterioration” will be a drag anchor on Europe. Output across the Eurozone is now predicted to rise by 0.8% this year, with an earlier projection expecting 1.1% growth.  Next year’s growth outlook was cut to 1.3%…

The growth forecasts for the top 6 European economies are:

Spain 2.2%
France 1.0%
Italy 0.9%
Netherlands 0.5%
Poland 0.5%
Germany -0.4%

Germany have at least announced a €32 billion tax-cutting growth plan to fix this. No such luck on our own shores: Jeremy Hunt has just told Bloomberg he doesn’t have much headroom in the Autumn Statement…

The Office for National Statistics (ONS) has published new GDP figures which show the UK economy flatlined in the three months to May, with GDP actually falling by 0.1% last month. Monthly GDP is just 0.2% above its pre-pandemic levels. The ‘good’ news is the 0.1% fall in May was slightly better than the 0.3% contraction expected; the bad news, of course, is inflation is still stuck at 8.7%. Rishi’s first two pledges were to halve inflation and grow the economy this year. We are now halfway through July…

The Liz Truss-backed Growth Commission, launched only yesterday, is already on the attack, with co-chair Shanker Singham saying this morning:

“Low or no growth and the inevitable toss up between pay increases and service cuts. This is all why growth is so important. With growth, with a bigger pie, you can support proper pay without having to impact services. You can put more money in people’s pockets and the Government coffers. It has to be the primary focus of policymakers.”

Boffins at Capital Economics predict growth of 0.1% in the three months to June, at least. We should be so lucky…

This morning’s dismal revised ONS GDP data revealed that

• UK GDP fell by a revised 0.3% in Q3 (previously estimated to be a 0.2% decline).
• GDP is now at 0.8% below pre-pandemic levels (revised down from prior estimate of 0.4% below).
• Household spending dropping by 1.1% after inflation in Q3.

Liz Truss, despite the now prevailing derision towards her, was right: growth is more important than balancing the books in the short term. Guido doesn’t get the feeling that Sunak or Starmer are prioritising economic growth above political positioning. Britain will almost certainly be in recession in 2023 – what’s the growth plan?

Rishi says the illegal migrants issue is getting his focus in Downing Street, “I do think that the absolute priority that the British people have right now, as do I, is to grip illegal migration… I can tell you that I’ve spent more time working on that than anything else…”. Guido disagrees with his sense of priority. Economic decline is impacting on everyone’s living standards and the latest Ipsos MORI survey confirms people are far more concerned about the economy than immigration. We need to prioritise getting a grip on growth.

There is a rare sliver of good economic news this morning, as the ONS confirmed we are not currently in recession. The body has announced that a previous estimate that economic growth fell by 0.1% in the three months to June has been revised up to a rise of 0.2%, narrowly avoiding a second month of negative growth which would have defined the UK as in a recession. Small mercies…

The UK’s current account deficit has also improved, according to the revised figures, from the £43.9 billion previously calculated to a mere £33.8 billion.

Liz and Kwasi shouldn’t be too pleased, however. The ONS now also calculates that the UK economy has recovered less from the pandemic than previously believed and is now the only G7 country still languishing below pre-pandemic levels by 0.2% compared to the final quarter of 2019. The Queen’s death and subsequent economic pandemonium are expected to quash any hope of further good GDP news in the final two quarters of 2022…

“Chancellor Kwasi Kwarteng will struggle to hit his target of boosting annual UK economic growth to 2.5%” writes the FT’s Chris Giles in an article that is representative of much of the broadsheet commentary since Friday, with the honourable exception of the Telegraph. Starmer is, at the time of this going to pixel, not planning to reverse Kwasi’s tax cuts or the now cancelled tax rises he’d already opposed, with the result that the Labour Party is quibbling with very little of the changes. It boils down primarily to their rejection of the abolition of the 45% rate bringing the top rate of income tax down to 42.5% (including NI). Labour have accepted two thirds of the personal income tax cuts. They are only rejecting one cut, the top rate cut…

So the the dividing line between the parties is: Will “new era” economics work and crank growth up to 2.5% before the next election?

Not a chance say Rachel Reeves and the assembled hardline-centrists of the broadsheet punditry, plus all the orthodox economists from the IFS, Institute for Big Government and gloomy Torsten Bell with his distribution charts. Kwasi and Liz say it will work. It won’t surprise co-conspirators that Guido thinks it is less of a gamble than the BBC’s Faisal Islam reckons. Barring oil going to $300 or some other catastrophe, it is far more likely to work than the doomsters would have you believe. If Kwasi and Liz fail to hit the 2.5% target they have set for themselves, they will deservedly lose the next election. The choice now is pull out all the stops and go for growth, or go into opposition…