The UK GDP monthly estimate has shown no growth in July for the second month in a row, coming in under market expectations of 0.2%.
In the three months to July, the UK economy showed growth slightly below analyst expectations, at 0.5%. The services output, however, did tick up 0.1% in July after falling 0.1% in June, making for a three-month growth of 0.6%.
Production output, however, fell 0.8% in July, while construction reduced by 0.4%. Over three months, construction did grow by 1.2%, which the Office for National Statistics noted was the first positive growth over three months since September 2023.
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Neil Birrell, chief investment officer at Premier Miton Investors and lead manager of the Premier Miton Diversified Fund range, said: “The UK economy unexpectedly showed no growth in July. Concerns over the strength of the economy have been on the increase for a while and it’s come to fruition with this data point.
“Construction, manufacturing and industrial production were all weak. The Bank of England may be winning the battle against inflation, but attention now has to turn to growth and there can be little doubt that rates will be cut at the meeting next week. Attention will focus on how fast rates will fall, not if they will, but the Bank does have plenty of room for manoeuvre.”
The Bank of England made its first rate cut of the year on 1 August, cutting 25 basis points to a 5% interest rate. The possibility of cuts earlier in the year had been outweighed by the risks of inflation, as the UK brought the figure down to 2%.
Lindsay James, investment strategist at Quilter Investors, said despite today’s “disappointing” figure, “there are signs that solid, if unspectacular, economic growth is returning to the UK”.
“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,” James said.
“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, while 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.”
Michael Field, European market strategist at Morningstar, added: “This is certainly an improvement from the technical recession we hit in 2023, but weak enough to persuade the Bank of England that further rate cuts are warranted.
“Sporting events like the Euro 2024 may have thrown off the numbers in July, with some sectors benefiting and some losing out on business as a result, but the takeaways from today’s release are clear: growth remains low and inflation is falling. For the Bank of England, this means that the risk of overheating the economy with further rate cuts is very much diminished.”
