ONS data indicates that monthly GDP growth ground to a halt, after a promising 0.4% rise in June, output in July was flat, neither advancing nor contracting.
Over the three months to July, however, the picture shows modest forward momentum: GDP rose by 0.2% compared to the three months to April, a slowdown from earlier quarters. Services and construction provided the bulk of this growth, while production notably lagged behind according to the ONS.
With the budget set for November and the Bank of England’s MPC meeting next week for the September interest rate decision, there’s a lot for advisers and wealth managers to read into the economic data right now. Inflation data is out next Wednesday which will be another key indicator of the economy.
Richard Pike, chief sales and marketing officer at Phoebus said:
“Flat monthly GDP highlights the fragile state of the UK economy and raises fresh questions about how policymakers will respond. The Bank of England may feel renewed pressure to take a more supportive stance, whether through signalling future rate cuts or other measures to stimulate demand. For the housing market, weaker growth risks dampening buyer confidence and delaying decisions, particularly at a time when affordability remains stretched. Any action to underpin the wider economy will be watched closely by households and the property sector alike.”
George Lagarias, Chief Economist at Forvis Mazars said:
“The UK economy continues to grow at a sluggish pace, as industrial production suffers from worsening global demand. The services sector keeps things humming, but the economy needs more than just services if it is to break out of its rut. The central bank, which sees inflation pressures still somewhat intense, can do very little until next year, so it will be up to the government’s fiscal policy, or to a reversal of international trade conditions if growth is to pick up.”
Lindsay James, investment strategist at Quilter comments:
“After a positive first half of the year, UK economic growth is slowly grinding to a halt once again, with GDP failing to grow month-on-month in July, and slowing to just 0.2% on a three-monthly basis. This increase was driven primarily by the services and construction sectors, but production output fell by 1.3%. However, growth is slowing in these sectors and is likely the result of actions taken by the Labour government now being realised, with the increase in employer national insurance contributions having a significant impact on business confidence.
With the summer now over and the economy supposedly getting out of its slumber, we now face continuing uncertainty in the lead up to the budget in November given the precarious position the Chancellor finds the public finances in. It is estimated that the fiscal hole that needs to be plugged is anywhere between £20bn and £50bn. While that is a wide range, it means one thing for a government that has shown it will struggle to cut spending – more tax rises.
Speculation is already rife about which taxes will be raised, and without the ability to raise the main revenue generators – income tax, national insurance and VAT – the government is left with targeting multiple sectors for small amounts of revenue. This is increasing the headwinds for the UK economy and with still over two months to go, GDP readings for the second half of the year are unlikely to pretty reading. For government under as much pressure as it is at the moment, this will be a very difficult corner to get itself out of.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said:
“UK GDP flatlined in July, as expected, in part due to payback from very strong growth in June. The monthly GDP data are very volatile month to month and it can be hard to extract signal from the noise. But with the labour market still deteriorating we expect H2 GDP overall to slow from the pace of H1. The key questions for the Bank of England though are more about inflation than growth right now, so this report is unlikely to change much in the way of the Bank’s thinking. We still expect one more interest rate cut later this year, but this is looking a finely balanced call.
Derrick Dunne, CEO of YOU Asset Management, said:
“We’re now well on the approach to the Autumn Budget, so flat GDP figures are going to be disappointing reading for both the Government and households. The bond market is restive with yields on the move and confidence in the state’s fiscal positioning wavering at best. The economy needs growth to outrun its debts and at present, this is not being delivered.
“With higher levels of inflation putting evermore pressure on the sums too, it remains to be seen now what drastic measures may be planned by Reeves and Starmer. The message for savers and investors is to ensure you have a clear plan in place to weather any potential outcome.
“Anyone who is unsure about how this could impact their personal finances should speak to a financial planner.”
