The recession promised by the voices of doom is not guaranteed, says Geoff Ho | Express Comment | Comment

Britain suffered a sharper-than-expected economic contraction in July and while this is not great news, the recession promised by the voices of doom is not guaranteed.

GDP or gross domestic product dropped by 0.5 percent in July, versus market expectations of a 0.2 percent fall, basically due to the awful weather and strikes. As these factors can be regarded as one-offs, July is unlikely to be the start of a prolonged economic slump.

Strikes in the education sector look to have been settled by the 6.5 percent pay deal agreed by the Government and unions, which means that its contribution to the economy will recover soon enough.

Additionally, look for something of a recovery in output from the health sector as the sheer number of strikes in health sector in July, five days by junior doctors, 48 hours for both consultants and radiographers, is unlikely to be repeated.

Although the pay dispute between health workers and the Government is ongoing, I would not be surprised if there were fewer strikes in any one single month now, given that people were not paid on those days.

The bad weather in July reversed the gains from the warm days of June. As the weather returns to “normal” and the days lost to strikes falls, expect to see economic activity in the services sector start to normalise.

For an economy as lopsided as ours, this matters. Services is the primary driver of UK GDP and its performance will ultimately be what decides if we go into recession or not. Activity in the construction sector indicates that it has returned to growth, and while the manufacturing sector is weak, at just 10 per cent of the economy, a downturn there will not tip the country into recession.

Indeed, with strong pay growth, inflation falling and business investment starting to pick up, do not be surprised if consumption by households and companies is robust, supporting the economy.

Also, the weak GDP figure should allow the Bank of England to hold off from a 15th consecutive interest rate rise. Rather than carry on raising rates to tame inflation, it could pause and let the effects of previous hikes work their way through the economy.

So while the situation is not all doom and gloom, things are hardly looking up either. The economy is stuck in a cycle of anaemic growth and for millions, it will not feel too different from being in a recession. Without fully costed, targeted structural reforms and incentives from the Government, the cycle will continue.