UK GDP grows in July, suggesting economy will avoid recession for now

Despite monthly rise, economic output was flat in three months to July, with economists warning of no-deal Brexit recession

The service sector has expanded after four months of flat-lining output (AFP/Getty)

Britain’s economy expanded in July at the fastest pace since January, easing recession fears, although the longer-term trend remained weak.

GDP grew 0.3 per cent, beating economists’ forecasts for a 0.1 per cent rise, according to data from the Office for National Statistics (ONS). However, in the three months to July, economic output was flat.

Economists welcomed the monthly rise, saying Britain will probably avoid a recession after a surprise economic contraction in the second quarter. A recession is typically defined as two consecutive quarters of falling GDP.

“July figures point at a mild rebound at the start of the third quarter, although continued uncertainty around Brexit date and format will likely see a relatively subdued quarter,” said Yael Selfin, chief economist at KPMG UK.

“With uncertainty around the immediate outcome of Brexit on the rise, we expect the coming months to remain relatively volatile, with overall growth slowing after relatively strong July figures.”

Paul Dales, chief UK economist at Capital Economics, said some of the strength in July may be due to Brexit. He pointed out that expansion in the service sector – which provided the biggest positive contribution to GDP growth – followed four months of flat-lining output and said businesses may be bringing activity forward ahead of the October Brexit deadline.

A rise in manufacturing in July may also have been driven by stockpiling ahead of the deadline, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Looking ahead, analysts said Brexit and a weakening global economy posed the greatest risks to UK manufacturers.

A disorderly departure from the EU could tip Britain into recession, said PwC chief economist John Hawksworth, echoing forecasts by KPMG. The firm said earlier on Monday that a no-deal Brexit could lead to a 1.5 per cent fall in Britain’s GDP next year, while a deal would result in growth of the same magnitude.

Mr Hawksworth also pointed out a third scenario: “If there is a prolonged period of political limbo with no clear resolution of the Brexit issue, then businesses could continue to defer major investment decisions, causing the UK economy to continue to stall.”

Separate figures from the ONS showed that the UK trade deficit narrowed in the three months to July, largely as a result of falling imports of goods.