The July dip was far deeper than feared by the City and has once again led forecasters to warn to a shallow recession in the second half of the year.
The data from the Office for National Statistics (ONS) showed that the key services sector, which accounts for 80% of the economy, also fell by 0.5% in July.
This was largely the result of health sector strikes by junior doctors, senior doctors and radiographers, when 200,000 appointments were cancelled, and a walkout by teachers in July. Torrential rain also ravaged the retail sector where output was down 1.2% as shoppers shunned the High Street.
However, this was partially offset by the sports activities and amusement and recreation activities sector, which surged 12.4% in the month, Analysts said the much hyped shared release of the Barbie and Oppenheimer movies on July 21 in a week of heavy rain was a welcome boost to the economy.
The UK box office took £160 million in July, up 78% on June and 27% ahead of July 2022.Just two weeks after release Barbie had raked in £59.6 million, overtaking The Super Mario Bros Movie to become the biggest release of the year so far. Christopher Nolan’s Oppenheimer took £33.7 million.
The Odeon chain alone said more than one million movie fans paid to see the two releases in just four days making it the busiest weekend since reopening after the pandemic.
Thomas Pugh, economist at audit, tax and consulting firm RSM UK, said: “The UK economy shrank by 0.5% in July, completely reversing June’s 0.5% rise.
However, more than half the drop was related to strike action in the healthcare, education and transport sectors. Meanwhile, consumers focused on entertaining themselves, and their kids, during the exceptionally wet July meaning that output in arts entertainment and recreation sector soared, no doubt helped by the Barbenheimer effect.
“The big picture is that growth is still flat-lining. We expect the economy to continue to stagnate for the rest of the year but there is a growing risk of a recession towards the end of this year or early 2024. This would support the MPC pausing after a 25bps hike next week.”
Danni Hewson, head of financial analysis at brokers AJ Bell, said: “It’s not all bad news, over the three months to July the economy did manage to keep on trucking and people did find ways to entertain themselves indoors.
“Barbenheimer dragged many people out to the big screen, often for a double bill, and a bit of mud isn’t going to put off most music lovers when there’s a festival to attend. It’s been a summer of sport and entertainment, which even cost-of-living pressures and the rain couldn’t totally kibosh.”