The UK economy experienced an unexpectedly sharp contraction in July in the wake of strikes in hospitals and schools, as well as unusually wet weather, according to figures released by the Office for National Statistics (ONS) on Wednesday.

Gross domestic product (GDP) in the British Isles declined by 0.5 per cent in July from June adding to fears of a recession in the second half of the year. Analysts had expected the economy to shrink by 0.2 per cent, but the ONS said that strikes by junior doctors reduced health service activity, while the warm weather that boosted shopping in June was not as favourable in July, which was the sixth wettest month on record.

“Our initial estimate for July shows that GDP fell; however, the broader picture looks more positive, with the economy growing across the services, production and construction sectors in the last three months,” Darren Morgan, ONS director of economic statistics, said.

Meanwhile, industrial production across the eurozone fell more than most economists anticipated in July, signalling that the economies that share the euro currency are facing a slowdown, a report by statistics agency Eurostat showed on Wednesday.

The eurozone’s industrial output fell 1.1 per cent in July compared with June, the report showed, versus expectations of a drop of 0.7 per cent and an increase of 0.4 per cent in June. On an annual basis, production fell by 2.2 per cent in July, compared with a 1.1 per cent decrease in June and expectations of a 0.3 per cent drop.

Bradley Saunders, an economist at Capital Economics, expects industrial production to continue the trend downwards for the remainder of the year, given the weakening demand. He said weak industrial production will help to push the eurozone’s economy into a recession later this year.

Finally, in the US, a highly anticipated report by the US Labour Department released on Wednesday showed that consumer prices rose in line with economist estimates in August. The Consumer Price Index (CPI), which measures price changes at retail level across a broad basket of goods and services, rose a seasonally adjusted 0.6 per cent for the month, and was up 3.7 per cent from August of last year.

Economists had forecast respective increases of 0.6 per cent and 3.6 per cent. However, core CPI, which excludes volatile food and energy items, increased by 0.3 per cent and 4.3 per cent respectively, compared to forecasts of 0.2 per cent and 4.3 per cent. When setting interest rates, the US central bank gives more importance to the core rate, as it provides a better indication of where inflation is heading over the long term. Even with the decline in the core rate in recent months, inflation still remains far above the bank’s target rate of two per cent.

This article does not constitute legal and/ or financial advice and is being issued for information purposes only by Bank of Valletta p.l.c., 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap.371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta).

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