A summer of zero growth
The economy did not grow. Not at all. The consensus among economists is clear, they expect the official figures for July to show that the UK economy has flatlined. Zero. It is a number that suggests stagnation, a country stuck in neutral while the engine just hums. Gross Domestic Product, or GDP, is the main tool we use to measure this. It is the monetary value of every single finished good and service produced and sold within the country’s borders over a specific time. Think of it as the grand total on Britain’s national till receipt for the month, adding up every new car, every hospital procedure, every haircut and every cup of coffee into one enormous figure. A growing number means we are getting richer. A shrinking number means we are in recession. A flat number suggests we are treading water.
That is the headline story. It is not the real story.
A single figure for GDP, especially a figure of zero, is profoundly misleading. It creates an illusion of calm. It suggests a month where nothing much changed and business carried on as usual. The truth is the opposite. A headline figure of zero does not mean that every business and every sector stood still. Instead, it points to a dramatic and violent churn happening just beneath the surface, where rapid growth in one part of the economy is perfectly cancelled out by an equally rapid decline in another. It is the statistical equivalent of watching a tug of war where two teams are pulling with immense force, yet the central flag barely moves an inch. The stillness is a sign of intense, opposing pressures. That is the situation for the United Kingdom.
This is not an academic distinction. This matters. The real story of the British economy right now is not about the total, it is about the components. It is a story about what we are choosing to buy. There is a huge shift in our spending. This change has massive consequences for which businesses thrive and which businesses fail, which jobs are created and which are lost, and ultimately, why the prices for some things keep rising even as the economy as a whole appears to be going nowhere. The single, static number hides everything. The real action is in the detail.
We are buying experiences, not things
We are choosing experiences. Not things. This is the great rotation, a rebalancing of the British economy from physical goods to intangible services that accelerated dramatically after the pandemic lockdowns ended. We spent two years stuck at home. During that time we bought things to fill the space, pouring money into new televisions and better garden furniture. We renovated. Now we are free. We are making up for lost time. The powerful, pent up demand for social connection, for shared experiences with friends and family in busy, noisy places, is proving far more compelling than the lure of another online purchase delivered in a cardboard box.
This is not just about fun. It is about perceived value. During a cost of living crisis, this seems contradictory. Why spend £6 on a pint? For many, the immediate joy and social benefit of an evening out feels like a better use of scarce funds than buying another consumer durable that might sit unused, a calculation being made in millions of households as budgets are squeezed tight by rising food prices and energy bills. The toaster can wait. A night out cannot. A trip to the cinema, a meal at a restaurant, or a few drinks at the local pub offers a temporary escape and a memorable experience. A new kettle does not.
The consequences are brutal. For every pound spent in a pub, that is a pound not spent in a department store or an online warehouse. Hospitality venues, especially those focused on drink led sales and social events, are seeing a revival, desperately trying to hire staff to meet a surge in demand that many feared would never return after 2020. They are the winners. For high street retailers the picture is far bleaker. The spending shift is a double blow, hitting them just as they grapple with the long term structural decline caused by the rise of internet shopping. Empty shops tell this story. Even online retailers who sell physical products are feeling the pressure, discovering that the captive audience they enjoyed during lockdown has now logged off and gone outside. This is not a temporary blip. It is a fundamental realignment.
How a pint and a toaster move the dials
Gross Domestic Product is the official measure of all the economic activity in the country, a giant tally of every single paid for service from a haircut in Halifax to every physical good from a car built in Sunderland to a carrot grown in Lincolnshire. GDP is a simple idea. It just adds everything up. It does not care how the money is spent. A £30 purchase of a new toaster adds exactly the same amount to the national accounts as spending £30 on five pints in a pub. Thirty pounds is thirty pounds. The headline figure treats them as identical. Their economic footprints are not.
Think about the pub. Your £30 pays for the bartender's wages. It contributes to the pub’s business rates paid to the local council in Leeds, the electricity bill, and the landlord's profit. That money also travels to the brewery in, say, Burton upon Trent, paying wages there and buying hops from a farmer in Kent and malt from Norfolk. The supply chain is overwhelmingly domestic. The money stays here. It circulates within the British economy, supporting a web of British jobs in many different locations. It pays local wages.
The toaster is different. That £30 purchase in a branch of Currys in Cardiff provides a small slice of profit for the retailer and pays a tiny fraction of the shop assistant's salary. A portion goes on logistics, paying for the lorry that brought it from the port at Felixstowe. Most of it leaves. The vast majority of your money is immediately wired overseas to the company that owns the factory, likely in the Chinese city of Shenzhen, to pay for the metal, the plastic, the heating element, and the labour that assembled it all. The economic journey of that toaster is a vast, globe spanning affair, meaning the bulk of your cash is destined for an account thousands of miles away from the British high street. A pound spent on a pint and a pound spent on a toaster are not equal. One supports British jobs and businesses directly. The other mostly supports them somewhere else.
The shift creates winners and losers
This spending pattern creates clear winners and losers. The economy is not a single entity. It is a collection of sectors, some of which are now thriving while others are forced into retreat. This is a painful rebalancing. It has consequences. The winning sectors are those selling experiences, not things. Think hospitality, leisure, and travel. Pubs are hiring. So are restaurants and hotels. The jobs created are often flexible, part time, and spread across the entire country, from a city centre bar in Manchester to a coastal bed and breakfast in Cornwall.
The losers are the businesses selling physical goods. High street shops are struggling. So are the online retailers that boomed during the pandemic lockdowns. They are left with warehouses full of stock people no longer want to buy and the grim task of making staff redundant. These job losses are frequently concentrated in specific areas, hitting distribution hubs in the Midlands or legacy retail centres that are already hollowed out. An empty shop on the high street in Doncaster or Dundee pays no business rates to the local council. A struggling online retailer pays less corporation tax to the Treasury. The government's income feels this shift directly.
The jobs themselves are very different. A hospitality role is often paid at or near the national minimum wage. Job security can be low. By contrast, while many shop floor jobs are similarly paid, larger retail groups also support a vast number of better paid head office jobs in fields like marketing, buying, and logistics, which are now under threat. A pound diverted from an online book order to a round of drinks is a pound shifted from a potentially higher wage, more secure job in a centralised warehouse to a lower wage, less secure job in a local pub. This has a profound effect on the national payroll and the type of tax revenue the government collects. More people in work generates more National Insurance contributions, but lower average wages may mean less income tax is paid overall, complicating the chancellor’s budget calculations.
This is the Bank of England's headache
This is the Bank's headache. The zero growth figure is not the real story. The real story is inflation. Inflation is splitting.
One half of it is starting to behave. The price of goods is falling, or at least rising much more slowly than before. The global supply chain problems that saw the cost of a shipping container rocket during the pandemic have eased, and the price of a new television or sofa reflects that new reality. People are also simply buying fewer of these items.
The other half is a problem. Services inflation is sticky. It will not go down. The price of a service, unlike the price of a toaster, is overwhelmingly the price of the person providing it, from the chef in the kitchen to the cleaner changing the hotel sheets. With hospitality businesses all competing to hire from the same pool of workers, they have to offer higher wages to attract staff. That extra cost gets passed straight on to you in the price of a meal, a haircut, or a pint of beer.
This presents a serious dilemma for the Monetary Policy Committee at the Bank of England. They have one main tool to fight inflation, the Bank Rate. Raising interest rates is a blunt instrument designed to cool the entire economy by making borrowing more expensive for everyone. The stagnant headline GDP number suggests they should stop, or even consider cutting rates to prevent a recession. But the stubborn inflation in the service sector, fuelled by wage growth, screams that they must keep rates high to get prices under control.
The Bank cannot set one interest rate for retailers and another for pubs. The decision applies to all. A company looking to invest in a new factory and a pub owner needing a loan see the same base rate. A homeowner coming off a fixed rate mortgage deal does not get a discount because the inflation driving up their new payments is coming from services rather than goods. For the nine people on the committee, the risk of cutting rates too soon and allowing wage driven inflation to become embedded is huge. This is why your mortgage payments may stay high for a long time, even with the economy going nowhere.
What you should watch next
The big question is what happens next. Will this trend hold? The shift from goods to services was powered by a warm summer and a lingering desire to socialise after the pandemic lockdowns. Those forces are temporary. Autumn is coming. The nights are drawing in. People will spend more time at home as the weather turns, and the arrival of winter energy bills will concentrate minds on household budgets. The great escape into pubs, restaurants and theatres may prove to be a short one, a final summer blowout before the economic reality of stagnant growth and high borrowing costs truly begins to bite for millions of families. A wet September could do more to slow services inflation than any number of interest rate rises from the Bank of England.
You must look past the headlines. The next set of figures from the Office for National Statistics is your guide. Forget the main GDP number for a moment and find the detailed tables which are usually published alongside it. The most important is the consumer spending breakdown, which will show precisely how much money is going on goods versus services. Is the gap still widening? Or has spending on sofas and televisions started to recover? This single chart tells you more about the real economy than anything else. Then look for the business investment statistics. These are critical. They show what companies, not households, are doing with their money.
Business investment is the best measure of corporate confidence. A firm that buys new machines, opens a depot or upgrades its computer systems is making a tangible bet on future growth and future profits. A firm that holds back cash is worried about what is around the corner. The data will show if the winners from the summer, the pub chains and hotel groups, are reinvesting their profits, or if the caution from the struggling retail sector is spreading across the entire economy. A sustained fall in business investment would signal a much deeper downturn is on its way, because it means bosses see no clear path to growth. They are pulling the shutters down.
Finally, watch the jobs numbers. They are not just one number. The ONS provides a detailed breakdown of employment by sector. This is where an economic trend becomes a human story. Are retailers still laying off staff? Are hospitality businesses still hiring at the same pace? The data will also contain wage growth figures for each sector, showing whether the pay rises that are fuelling services inflation are continuing. This combination of employment and wage data is what the Monetary Policy Committee will be watching most closely when it decides what to do with interest rates next month. The numbers will show if the economy is rebalancing or just stalling. That is what matters.
Sources. Independent Business: UK economic growth set to peter out as consumers swap shops for pubs. Evening Standard: UK economic growth set to peter out as consumers swap shops for pubs.
Analysis. Drafted with AI assistance from the sources listed above and reviewed by an editor before publication. Jnews links to the organisations it writes about.
