UK economy bounces back in July as construction output hits record high

The Office for National Statistics (ONS) said the economy expanded 0.3% in July, while gross domestic product (GDP) rose 0.6% on a three-month basis.

That was ahead of economist expectations for a 0.1% and 0.5% rise, respectively.

Economic growth was bolstered in part by the UK’s dominant services sector, which grew 0.3% month on month thanks to activity in the professional, scientific and technical industries.

On a three-month basis, the services sector grew by 0.6% on the back of a rise in retail and wholesale trading, bolstered by growth in food sales during the World Cup and hot weather.

Construction also performed strongly, rising 0.5% in July on stronger than usual growth in housebuilding for this time of year.

It sent construction output to a record high, with the sector growing 3.3% on a three-month basis.

The pound was positive on the news, up 0.15% on the US dollar to trade at 1.293, and rising 0.2% versus the euro to 1.118.

Commenting on the figures, the Office for National Statistics’ head of GDP Rob Kent-Smith said: “Growth in the economy picked up in the three months to July.

“However, production fell back, with manufacturing again slipping a little while energy generation and supply fell due to reduced demand.

“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.”

A 0.2% contraction in manufacturing dragged on production growth, which was up just 0.1% in July. The agricultural sector also shrank 0.1%.

Howard Archer, chief economic adviser to the EY ITEM Club, said the overall economic performance in July could put the UK on track to beat expectations for the third quarter of 2018.

“We had expected GDP growth to be stable at 0.4% quarter-on-quarter in the third quarter but the July data mean there is a very real chance it could improve to 0.5% quarter-on-quarter.”

However, he does not believe the latest release set the stage for a surprise interest rate rise by the Bank of England this Thursday.

“The Bank of England will highly likely regard GDP growth of 0.3% month-on-month in July and 0.6% on a three-month/three-month basis as justifying its decision to raise interest rates from 0.50% to 0.75% in August,” he said.