UK economy stagnates in july amid growth concerns

London: The UK economy remained stagnant in July, showing no month-on-month growth, according to preliminary data released by the Office for National Statistics (ONS) on Wednesday. This follows a similar lack of growth in June, marking two consecutive months of flatlining economic activity.

Gross Domestic Product (GDP) for July fell short of expectations, with economists polled by Reuters forecasting a 0.2% growth. While the services sector, which dominates the UK economy, recorded a slight increase of 0.1%, output from the production and construction sectors declined by 0.8% and 0.4%, respectively.

Despite the stagnation in recent months, the economy saw growth of 0.5% in the three months leading up to July, though this was slightly lower than both economist predictions and the 0.6% recorded in the second quarter.

Liz McKeown, director of economic statistics at the ONS, acknowledged the ongoing challenges, stating, "The economy recorded no growth for the second month running, though longer-term strength in the services sector led to growth over the last three months."

The UK economy has experienced modest growth throughout the year, having emerged from a shallow recession at the start of 2024. The July data is the first to be released under Prime Minister Keir Starmer's new Labour government, which took office on July 4.

Finance Minister Rachel Reeves expressed concern over the current state of the economy, emphasizing the difficulties ahead. “Two quarters of positive economic growth do not make up for fourteen years of stagnation,” Reeves said. She has cautioned that the upcoming Autumn Statement on October 30, where she will announce the new budget, will include tough measures. Reeves has attributed the challenges to a £22 billion ($29 billion) budget shortfall inherited from the previous Conservative government—a claim denied by former Finance Minister Jeremy Hunt.

Investment strategist Lindsay James from Quilter Investors noted that the potential for tax hikes in the upcoming budget could dampen consumer and business spending in the coming months. However, she added that anticipated interest rate cuts from the Bank of England could provide some relief, with the central bank set to meet next week to review its policies.

“This month may just be a temporary setback, especially with optimism surrounding the wider economy and further rate cuts expected in the coming year,” James concluded.