The latest figures released by the Office for National Statistics (ONS) reveal that there was no growth in the UK economy in July. This is particularly surprising as it is the second consecutive month of stagnation, with GDP remaining flat following the election of the Labour government. Economists had anticipated a growth of 0.2%, making the actual flatline result even more unexpected.
Despite the short-term challenges faced by the UK economy, there is a silver lining in the form of “longer-term strength” in the services sector. Over the last three months, there has been a 0.5% expansion, with the UK boasting the highest growth rate among the G7 nations in the first half of 2024. This indicates that there is still hope for recovery, albeit gradual.
The growth in the services sector, which was primarily led by computer programmers and the resolution of strikes in the health sector, was somewhat overshadowed by declines in industries such as advertising, architecture, and engineering. Manufacturing output also took a hit, particularly in the car and machinery sectors, while construction saw a decline as well. These sector-specific impacts have contributed to the overall stagnation in the economy.
In light of the stagnant growth, market expectations suggest that the Bank of England is likely to keep interest rates unchanged in the upcoming meeting. The central bank had previously raised rates in an attempt to curb inflation but may now consider a cut in rates in November to stimulate economic growth. A rate reduction to 4.75% is anticipated at that point, reflecting the central bank’s strategy for addressing the current economic challenges.
Chancellor Rachel Reeves acknowledged the challenges ahead, emphasizing that economic recovery will not happen overnight. Despite two quarters of positive growth, there is recognition that more sustained efforts are needed to overcome the 14 years of stagnation. The government’s response to the economic situation will play a crucial role in determining the future trajectory of the UK economy.