UK economy flatlines for a second month in a row #UKFinance

UK economic growth flatlined once again in July, with data from the Office for National Statistics (ONS) showing gross domestic product (GDP) did not see any month-on-month growth, having also flatlined in June.

This came in below expectations of 0.3% month-on-month growth, according to a research note from Deutsche Bank released on Monday.

The services sector grew 0.1% in July but both production and construction fell by 0.8% and 0.4% respectively.

Figures released last month showed the economy expanded by 0.6% in the second quarter, after having grown 0.7% in the first three months of the year.

GDP is the measure of everything produced in the UK.

Liz McKeown, the ONS director of economic statistics, said: “July’s monthly services growth was led by computer programmers and health, which recovered from strike action in June.”

“These gains were partially offset by falls for advertising companies, architects and engineers.”

At the end of last year, the UK economy fell into a shallow and short-lived recession. A recession is defined as economic activity shrinking for two three-month periods — or quarters — in a row.

The data comes ahead of the Bank of England’s (BoE) meeting next Thursday, when it will share its latest interest rate decision. Markets have been pricing in that the central bank will keep rates on hold in September, but will continue on a gradual path of easing, with two cuts anticipated before the end of the year.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said that the ONS data would “reinforce expectations for two rate cuts in the months to come, but the jury is still very much out when it comes to next week’s decision.”

“Financial markets have been assessing the chance that rates will be kept on hold as above 75%, so this data point alone is unlikely to move the dial significantly.”

Read more: UK interest rates could be cut again as wage growth slows

The BoE cut the base rate to 5% in August from a 16-year high of 5.25% in its first cut since March 2020.

Story continues

The Bank of England also keeps a close eye on wage growth, because of its significant impact on inflation, which is currently above the 2% target.

ONS data released on Tuesday showed UK wage growth continued to slow in the three months to July, with annual pay excluding bonuses growing 5.1% in that period.

Meanwhile, the rate of unemployment fell to 4.1%, the ONS data showed, down from 4.2% in the three months to June.

Sanjay Raja, UK chief economist at Deutsche Bank Research, said: “Growth is normalising from the rapid pace set in [the first half of 2024] — this much should be expected.”

“The pace of the slowdown, however, is a little faster than we anticipated — especially in light of the still stellar survey data we’ve seen over summer,” he added.

As a result, Raja said Deutsche Bank Research’s economic growth forecast for the third quarter had “slipped meaningfully.”

Read more: Targeting inheritance tax, capital gains and national insurance ‘could raise £20 billion’

Meanwhile, Hailey Low, associate economist for the National Institute of Economic and Social Research (NIESR) said that despite this weaker economic growth data, the “strong start to 2024 will likely extend into the second half of the year.”

“However, high-frequency indicators are signalling a relative slowdown in momentum for the remainder of the year,” she said.

Lindsay James, investment strategist at Quilter Investors, said: “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.”

“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,” she said.

Chancellor Rachel Reeves is due to deliver the autumn budget on 30 October, with much speculation around what the government will do to deal with a £22bn “black hole” in public finances.

The government has pledged not to raise the main rates of income tax, corporation tax, VAT or national insurance.

On Wednesday, Reeves said on social media platform X: “I am under no illusion about the scale of the challenge we face after fourteen years of low economic growth”

“That’s why we are taking the long-term decisions now to fix the foundations of our economy, so we can rebuild Britain and make every part of the country better off.”

Download the Yahoo Finance app, available for Apple and Android.