UK GDP beats expectations in July as World Cup and weather provide a boost
The UK economy grew more than expected in the three months to July as the hot weather and the World Cup provided a boost, according to official data released on Monday.
UK gross domestic product grew by 0.6%, the Office for National Statistics revealed, up from 0.4% in the previous three-month period and beating expectations for a 0.5% rise. On the month, GDP grew 0.3%, up from 0.1% in June and beating expectations for a 0.2% increase.
The stronger economic growth was driven by monthly services sector output growth of 0.3% after a flat June and construction sector expansion of 0.5%, led by new housebuilding work.
Manufacturing production contracted 0.2% to curtail total industrial production growth to just 0.1%, entirely on the back to a 5.0% monthly jump in oil and gas extraction activity.
"Services grew particularly strongly, with retail sales performing well, boosted by warm weather and the World Cup. The construction sector also bounced back after a weak start to the year," said the ONS's head of GDP Rob Kent-Smith.
"The dominant service sector again led economic growth in the month of July with engineers, accountants and lawyers all enjoying a busy period, backed up by growth in construction, which hit another record high level
"However, production fell back, with manufacturing again slipping a little while energy generation and supply fell due to reduced demand."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "Overall, July’s data suggest that the risks to the MPC’s forecast for another 0.4% quarter-on-quarter rise in GDP growth in Q3 lie to the upside. But the fall in the confidence components of the Markit/CIPS and Lloyds surveys, the slowdown in global manufacturing, and the prospect of a further escalation of political tensions in the UK suggest that the economy is heading for a weak end to 2018."
Inflation looked likely to ease as the boost from higher import prices fades, Tombs said, with domestic price pressures still subdued. "As a result, the MPC still should be able to wait until the Brexit Withdrawal Agreement has been signed early next year before raising Bank Rate again; this week’s Committee meeting likely won’t be accompanied by major market-moving commentary."
While the three-month on three-month GDP growth rate improved to the best level since August 2017, economist Howard Archer of the EY Item Club said the higher growth rate could have been a result of the weather-related softness of the economy in late-February and March.
But having expected GDP growth to be stable at 0.4% quarter-on-quarter in the third quarter, Archer said the July data suggests there is "a very real chance" it could improve to 0.5% quarter-on-quarter in the third quarter.
He also said that construction activity's 0.5% monthly increase in July was an impressive performance after strong monthly growth in June and May, with construction output up 3.3% on a three-monthly basis.
“The construction sector has been making up for some of the lost activity in the first quarter due to the severe weather. There also appears to have been an underlying pick-up in activity after a poor start to the year. Worryingly though, construction new orders fell 6.5% quarter-on-quarter, which was a third successive decline. Consequently, the ONS reported that the value of total new orders fell to its lowest level since the first quarter of 2013."