The UK economy grew faster than expected in July, easing the fear that it could fall in recession.
The economy grew 0.3% in July, said the UK's official statistics agency, aided by the dominant services sector.
Growth was flat during the three months to July, but this was an improvement of 0.2% contraction seen in the quarter of April to June.
This contraction, combined with some weak business surveys, aroused concern the UK was heading for the recession.
- What is GDP and why does it matter?
An economy is generally considered to be in recession if it contracts for two consecutive quarters.
However, while growth in the services sector ̵
"While the largest part of the economy, the services sector, returns to growth in July, the UN underlying image shows the growth of services through 2019," said the ONS.
The pound rose in response to the numbers, rising 0.6% against the dollar to $ 1.2357.
Pound v US Dollar
Back to economic growth in July will be a political relief for a troubled government that is keen to avoid recession headlines in early November. It is unlikely that the notion of a further quarter-quarter contraction between July and September, the definition of a recession.
But that does not make economic reality rosy. In the three months to July, the economy did not grow. Even with a third quarter that recorded 0.3% growth, it would be the weakest three first quarters since the financial crisis.
Within nine months, much of the volatility around non-agreement – inventory effects and shutdown of the automotive industry – should also have been removed.
There is some evidence in the figures that companies are starting to start storage pending the increasing opportunity for Brexit without a deal next month.
It is difficult to predict how the current political influence affects these patterns. But long-term pressure on business investment should always hit productivity and growth.
The global context is far from benign, with the German economy likely to be in recession and the eurozone as a whole growing slowly.
Other survey indicators for the UK also look more difficult. But if the Christmas pattern continued last month and into this, when the full Q3 figures are released in November, the government should be able to avoid the R-word, for now.
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The British Chambers of Commerce (BCC) also said the concerns remained.
"Although there was an increase in GDP between June and July, the zero growth of the underlying three-month measure was pointing to an economy under pressure from uncertainty surrounding Brexit and weakening economic conditions," said Suren Thiru, BCC chief financial officer .
"The manufacturing sector continues to be a concern, with tighter cash flows, distressed supply chain concerns and weakening demand in key markets weighing on sector activity."
Last week, a series of survey studies of various sectors of the economy raised fears that the UK risked slipping into recession. [19659007IntermediateAnalystDespatchesBNPFiguresAlsoHelpingTheseConcerns
"The July GDP pickup is a reassuring sign that the economy is on track to grow at a solid – perhaps even above-trend – rate in Q3," said Sa muel Tombs in the UK economist at Pantheon Macroeconomics, adding that numbers "significantly" weakened the case for any cuts in UK interest rates "before the UK's Brexit trajectory is known."
"The upside surprise came from the service sector, broad-based strength and did not seem to benefit from any one-off stimulus," Tombs said.
Analysts also noted that August's growth figures should be increased by automakers, which were in operation last month, contrary to normal practice. Many carmakers had brought their annual end to the original Brexit date in March.
"GDP will get a further boost of around 0.2% in August, as carmakers will be at work when they are usually on vacation," said Paul Dales, UK's chief economist at Capital Economics.
"Overall, the economy is still quite weak – we estimate the underlying growth rate is around + 0.2% quarterly – but it is not in recession. Political chaos, yes. Economic chaos, no."