UK Economy Stagnates for Second Month in a Row Amid Post-Election Uncertainty

The UK economy showed no growth in July, marking the second straight month of stagnation. Official data from the Office for National Statistics revealed that post-election expectations for a rebound were unmet, despite a 0.5% growth in the three months leading up to July.

UK Economy Stalls for Second Month, Dashing Hopes for Post-Election Rebound in July

According to the most recent official data, the UK economy's anticipated post-election rebound did not occur, as activity stagnated for the second consecutive month in July.

According to the Office for National Statistics (ONS), the gross domestic product remained unchanged for another month following the pre-election halting of activity in June.

The city was taken aback by the economy's dismal performance during Labour's first weeks in power, even though the economy experienced a 0.5% growth rate in the three months leading up to July. The city had anticipated a 0.2% monthly growth rate.

The economy experienced a 0.7% expansion in the first three months of 2024, followed by a 0.6% expansion in the second quarter. However, the most recent ONS figures indicate that the recovery from the modest recession in late 2023 has stalled.

The chancellor, Rachel Reeves, said: “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. Two-quarters of positive economic growth does not make up for 14 years of stagnation.”

The second month of zero growth slightly increased market expectations that the Bank of England would reduce interest rates for the second time during its meeting on September 19. At present, the official financing costs are 5%.

Ruth Gregory, a UK economist at Capital Economics, said: “For now, we are sticking to our view that the Bank of England will keep interest rates unchanged in September before cutting rates again in November. But today’s data has made an interest rate cut next Thursday a bit more likely.”

Services was the sole sector of the economy to experience growth in July, expanding by 0.1% out of the three primary sectors. Construction's output decreased by 0.4%, while production, which encompasses manufacturing, decreased by 0.8%.

Services Growth in July Driven by Tech and Health, While Manufacturing and Construction Decline

Liz McKeown, the director of economic statistics at the Office for National Statistics (ONS), stated that the monthly services growth in July was primarily driven by computer programmers and health, which had recovered from the strike action that occurred in June. Advertising companies, architects, and engineers experienced declines that partially offset these gains.

“Manufacturing fell, overall, with a particularly poor month for car and machinery firms, while construction also declined.”

Services was the sole sector of the economy to experience growth in July, expanding by 0.1% out of the three primary sectors. Construction's output decreased by 0.4%, while production, which encompasses manufacturing, decreased by 0.8%, per The Guardian.

Liz McKeown, the director of economic statistics at the Office for National Statistics (ONS), stated that the monthly services growth in July was primarily driven by computer programmers and health, which had recovered from the strike action that occurred in June. Advertising companies, architects, and engineers experienced declines that partially offset these gains.

Lindsay James, an investment strategist at Quilter Investors, stated that it was still feasible that the summer decline was a temporary phenomenon; however, she advised Reeves to exercise caution in her budget for the upcoming month.

“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,” James said.

Anna Leach, the chief economist at the Institute of Directors business lobby group, said: “It is important that the forthcoming budget delivers a strong and positive message on growth. To reinforce business confidence to grow and invest, businesses need a predictable and efficient tax system and growth-supporting policies.”