The UK economy stalled for a second month running in July as the boost to spending provided by sporting events such as the Euros provided only limited compensation for a fall manufacturing and building sector activity.
The Office for National Statistics said: “Monthly GDP showed no growth in July 2024, with falls in production and construction output being offset by a rise in services output.”
The numbers come as a disappointment to the Labour Government, which made boosting growth of the economy a priority after it took power following the July 4 general election.
In her first speech as Chancellor Rachel Reeves said: “Sustained economic growth is the only route to the improved prosperity that country needs and the living standards of working people.”
She promised to take the tough decisions required to promote growth alleging that previous governments had been unwilling to do so.
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In response to the GDP numbers, Danni Hewson, head of financial analysis at investment platform operator AJ Bell said: “With so many rumours swirling about next month’s Budget, getting more businesses to inject cash into the UK will require a deft hand.”
However, Ms Hewson noted the Bank of England had provided a boost to confidence by cutting interest rates by 0.25% to 5% in August. The cut was the first the bank made after raising rates 14 times, from 0.1% in November 2021, as it tried to tackle the surge in inflation.
While inflation has eased sufficiently to persuade policy makers at the bank to loosen policy, prices remain well above pre-pandemic levels leaving spending by consumers and businesses under pressure.
Economists expect the bank’s Monetary Policy Committee to leave rates on hold at its meeting next week although GDP has not increased since May.
Julian Jessop at the free market think tank, the Institute of Economic Affairs, said: "The lack of economic growth in both June and July strengthens the case for the Bank of England to keep cutting interest rates - and for the Chancellor to tread carefully in the October Budget.”
However, noting that GDP increased by 0.5% in total in the three months to July 31 compared with the quarter to April 30, he added:
“Monthly GDP data can be erratic … The poor July numbers are also hard to square with the mostly positive tone of the business and consumer surveys. There may have been some temporary factors at play, including election uncertainty and the weird weather.”
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Peter Arnold, EY UK Chief Economist, said: “The underlying pace of activity growth remains solid.”
Regarding the outlook for the next 18 months, Mr Arnold said EY Item Club economists expect the pace of growth should remain reasonably firm with real household incomes and consumer confidence continuing to improve.
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