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“The economy looks increasingly well-positioned to march on were it to benefit from an easing of the rate environment.”
– Derrick Dunne, CEO of YOU Asset Management
UK GDP has seen an unexpected flatlining, showing no growth in July 2024 for the second month running, below economists’ forecasts of a 0.2% monthly rise.
Real GDP is estimated to have grown by 0.5% in the three months to July compared with the three months to April, with widespread growth in the services sector in this period.
Having brushed aside the 2023 slowdown, the UK economy grew by 0.7% in the first quarter of 2024 and by 0.6% in the second. However, the third quarter has got off to an “inauspicious start”, Rob Morgan, chief investment analyst at Charles Stanley says.
He added that the year-on-year figure of 1.2% growth reflects a “mild but bumpy upturn from the low point in the fourth quarter of 2023”, with overall growth over the past three months salvaged by the service component with manufacturing and construction both in reverse.
Services output grew by 0.1% month-on-month, while construction output fell by 0.4% and production fell by 0.8%.
Derrick Dunne, CEO of YOU Asset Management, commented: “While just a snapshot, these monthly figures show the UK’s economy is still moving at a pedestrian pace overall. The year-on-year growth reported is certainly positive for businesses, households and government alike, but lacklustre growth is not going to solve everyone’s problems.
“We’re two years into higher rates now and with inflation back at normal levels the clear signs are there for the Bank of England to begin easing off on its big policy lever. The economy looks increasingly well-positioned to march on were it to benefit from an easing of the rate environment.
“Inflation will always need to be watched, but with real wage growth showing signs of beginning to slow down, the likelihood of a wage-price spiral is diminishing by the day. The Bank now needs to consider what effect higher rates will have on both businesses and households under pressure and act accordingly.
“For markets, modestly positive growth is a positive sign, but easing rates will be a much more influential factor in whether the markets can now march on to higher levels. For investors it is a question of sticking to their theses and being prepared for all eventualities. For anyone considering their position and the long-term health of their portfolio, seeking advice can be an effective way to ensure the best possible outcomes for their savings.”
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “The UK economy unexpectedly stalled in July, following flat growth in June, signalling that the economy’s robust start to the first half of the year may falter in the second. The UK economy rebounded strongly in the first half of 2024, making an easy exit from the technical recession it fell into in the second half of 2023 when high inflation and borrowing costs along with persistent industrial action dented output for two consecutive quarters.
“July’s stagnant output, however, may be a concern for the new Government considering Labour’s landslide victory in the General Election at the start of the month. Throw in the Euros, with the England team making it all to the final, and the start of the Olympics in Paris and it may come as a surprise that the economy did not benefit from an uptick in activity.
“Consumers and businesses may now be hoping that the subdued GDP data may prompt the Bank of England to push ahead with another rate cut at its monetary policy meeting next week. The quarter point rate cut at the start of last month is already filtering through to personal finance products with mortgage rates in retreat and the top savings deals easing from their highs. Those struggling with heavy debts or high home loan repayments will now be hoping for another cut sooner rather than later.
“The BoE has signalled it is prepared to reduce interest rates again but insists it must evaluate domestic price pressures carefully before making another move. Many economists had been expecting the BoE to hold off on a second rate cut until later in the year, but two months of stalling growth have the potential to catalyse a shift in stance.”
Lindsay James, investment strategist at Quilter Investors, added: “The UK economy was expected to continue to show modest momentum, but signs suggest that the growth from the first half of the year is now stuttering. July’s estimate has shown the UK economy had no growth, with growth for the previous three months coming in slightly below expectations at 0.5%. Given the mood music emanating from the government and the economic inheritance it has received from the Conservatives, the government needs to be careful not to overcorrect with its narrative around tax rises and the potential this has to put off investment.
“This month may just be a blip however, given recent positive noises that have been sounded about the state of the wider economy, especially as rate cuts will continue to be delivered over the coming year. Expectations for the UK economy have gradually shifted higher, with the IMF now forecasting UK GDP growth of 0.7% in 2024, up from 0.5% previously, whilst another measurement of economist forecasts has seen it rise from a low of 0.3% in March to 1% currently. The government will hope today’s figure does not dampen those forecasts.”