UK economy stagnated in July with no growth for the second month in a row

This morning’s UK GDP report pointed to the economy unexpectedly stagnating in July, notching no growth for the second straight month.

Meanwhile, on a rolling 3-month basis, GDP growth cooled to 0.5%, almost entirely a result of the solid pace of GDP growth recorded all the way back in May.

Despite the sub-par release, the figures are broadly in-keeping with expectations for growth to moderate in the second half of the year, after the strong start to 2024, which saw an average quarterly growth rate of 0.6%, as the economy recovered from the shallow recession at the tail end of 2023.

While the July stagnation doesn’t paint the rosiest picture of economic conditions during the summer, it is somewhat at odds with the backdrop signalled by other surveys such as the more timely PMI surveys, which point to the economy remaining on track to return to full capacity by the end of the year.

Downside risks, however, are clearly growing, particularly ahead of the imminent fiscal tightening in October’s Budget poses a significant downside risk to this view, particularly amid early signs that both business and consumer sentiment are already being pressured amid heightened uncertainty over Chancellor Reeves’ potential announcements. The Treasury’s ability to ‘shoot themselves in the foot’, and slam the brakes on the recovery, should never be under-estimated.

Meanwhile, for the BoE, today’s GDP figures are unlikely to be a game-changer. A September cut remains off the cards, with my base case remaining for a quarterly pace of 25bp Bank Rate cuts, leaving November on the table as the most likely MPC meeting for the next, and final, rate reduction of 2024. This ‘slow and steady’ approach to policy normalisation is relatively more hawkish than that seen elsewhere, particularly stateside, potentially providing some support to the GBP over the medium-term as a result.