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The UK’s Economic Growth Lessens Recession Fears

Worries that the British economy may be heading into recession were reduced slightly in July. An unexpected degree of growth during the month was reported by the Office for National Statistics.

While this isn’t a sign that the troubled times are all over, it is an indicator that things might not be quite as bleak as had been widely predicted.

The Overall Results and Their Importance

The UK’s economy grew by 0.3% in July. This was largely down to the strength of the country’s services sector. However, a small amount of growth was also seen elsewhere.

In fact, the full three-month period covered in the report showed neither growth nor contraction. However, this has been received as a positive sign, as an economy is generally said to be in recession if it suffers two consecutive quarters of negative GDP growth.

Since the numbers covering April to June of this year showed a 0.2% contraction, similar results for the next quarter would confirm that the country is in recession.  While this is still possible, the growth in July now makes it unlikely. 

The Reaction

One of the first notable reactions to this new came in the foreign currencies markets. The Pound quickly gained strength, climbing 0.6% against the US Dollar. It has been suggested that this unexpected growth may also lower the chances of UK interest cuts being made in the near future.

There are still fears of a recession occurring in the UK, though. This is especially true with the German economy heading towards recession and other European nations teetering on the brink of recession. This has also seen increased interest in international commercial debt collection services.

The reaction from the British Chambers of Commerce mentioned both the uncertainty around Brexit and the “weakening global economic conditions”. There is still concern over the manufacturing sector too, as cash-flow concerns and lower demand levels are making it a difficult period for this part of the economy.

More Details 

The main driver behind this modest but significant growth was the services industry. This area currently makes up around 80% of the total British economy. More worryingly, the ONS report pointed out that the “underlying picture shows services growth weakening through 2019”.

The manufacturing industry managed to increase output by 0.3%, while the construction sector saw an increase of 0.5%. All of this added up to results that were much better than the 0.1% increase in GDP expected.

It is also worth noting that even if the full 3rd quarter of 2019 maintains a 0.3% growth rate, it would still be a weak year from the British economy. Indeed, it would be the poorest first three quarters since the financial crisis hit the country.

Turning to the anticipated results for August, one aspect that should help is the fact that the country’s car manufacturing industry was working as normal during this month. The annual showdown that normally happens in August was brought forward to March this year, due to Brexit.

Some suggestions from analysts put the expected GDP growth for August at 0.2%.