Economy  

July GDP growth slows sharply as supply chain issues hit

July GDP growth slows sharply as supply chain issues hit

The growth of the UK economy slowed considerably in July as retail sales fell and supply chain issues caused a contraction in the construction industry.

Gross domestic product (GDP) grew just 0.1 per cent in July, lower than the expected 0.5 per cent and the rate for June, which was 1 per cent.

The economy has grown for six months in a row but the 3-month rate is now 3.6 per cent, lower than the 4.8 per cent seen in June.

The monthly rate remains 2.1 per cent below the peak seen in February 2020 before the pandemic hit, the Office for National Statistics (ONS) said.

Retail sales fell 2.5 per cent, driving a 0.3 per cent drop in output in consumer-facing services, and output from the construction industry contracted 1.6 per cent due to a shortage of building materials, soaring prices and failure to meet demand.

Sam Pham, investment strategist at Tilney Smith & Williamson, said it was important to note that supply disruptions accelerated in July. 

“European and US firms still find it hard to fill job openings, whilst global freight cost, tracked by the Freightos Baltic Index, have increased three times this year.”

He added that more persistent-than-expected inflation could eventually hamper growth, and lead to stagflation (where the economy suffers amid high-inflation and low economic growth).  

He added: “For now, we still like equities over bonds on earnings delivery and rising profit margin. We also recommend gold as a hedge to stagflation risks, as this asset benefits from lower real yields and higher inflation.”

However, Paul Craig, portfolio manager at Quilter Investors, said there were still opportunities for investors.

“These environments are ones in which quality businesses can thrive,” he said.

“Those with pricing advantages and strong competitive positions will benefit from an uptick in inflation, while those with established and resilient supply chains should overcome the current issues.

"Investors will want to pay attention to these businesses as the recovery plays out as that is ultimately where the value will lie.”

sally.hickey@ft.com