UK economy stagnates as GDP flatlines for second month in a row

The UK economy stagnated in July, marking the second consecutive month of zero growth.
Official figures showed the economy flatlined month-on-month, below the 0.2 per cent growth in gross domestic product (GDP) forecast by economists.
The economy expanded by 0.5 per cent when measured on a rolling three-month basis, dipping from 0.6 per cent in the previous period.
The stagnant performance is likely to result in an overall slowdown in quarterly growth, after a year in which the economy has performed better than expected. Gross domestic product rose by 0.7 per cent in the first quarter and 0.6 per cent between April and June, according to the Office for National Statistics, among the highest rates in the G7.
The ONS said July’s weak performance reflected a decline in monthly production output of 0.8 per cent and a 0.4 per cent contraction in construction. The services sector, which makes up the largest part of UK growth, expanded by a modest 0.1 per cent in July. The figures coincided with the general election on July 4 and part of the Euros football tournament.
Rachel Reeves said the figures reflected the government’s challenge in overturning “14 years of stagnation”.
“I am under no illusion about the scale of the challenge we face and I will be honest with the British people that change will not happen overnight,” the chancellor said. “Two quarters of positive economic growth does not make up for 14 years of stagnation.”
Weaker than expected economic growth could force the Bank of England into cutting interest rates more aggressively than expected this year, as wages are also steadily falling and inflation has declined this year. The Bank cut interest rates for the first time in four years in August but is expected to keep the base rate unchanged at 5 per cent next week.
The Bank expects quarterly growth of 0.4 per cent in the three months to September, a figure that may undershoot after the flat performance in July.
Before the latest GDP figures, analysts at Deutsche Bank said they expected growth to average around 0.4-0.5 per cent in the second half of the year to reach an annual figure of around 1.2 per cent for 2024. The economy is on course to grow on the back of higher household spending as inflation falls and interest rates are gradually cut.
“The UK’s economic fundamentals remain strong, particularly with household balance sheets in stellar condition,” Sanjay Raja, chief UK economist at Deutsche Bank, said.
“Some marginal fiscal expansion we think is also likely as the new chancellor’s fiscal framework incentivises more capital investment rather than departmental spending borrowing. We see GDP growth picking up next year and the year after to 1.6 per cent.”