Recent official figures from the Office for National Statistics (ONS) reveal that there was no growth in the UK economy in July. This marks the second consecutive month of stagnation following the election of the Labour government. Economists had anticipated growth, with a forecast of 0.2% expansion. However, the reality of a flatline in GDP was unexpected.
Despite the stagnant growth in July, there is some optimism in the longer-term strength of the services sector. Over the last three months, there has been growth, with a 0.5% expansion in the three months leading up to July. In fact, among the G7 group of industrialized nations, the UK boasted the highest growth rate in the first half of 2024.
While the services sector showed signs of growth, some areas experienced setbacks. Growth led by computer programmers was offset by declines in advertising companies, architects, and engineers. Manufacturing output suffered due to a particularly poor month for car and machinery firms, while construction also saw a decline.
Market expectations suggest that there will be no change in interest rates by the Bank of England at their next meeting. The central bank had previously raised rates to combat inflation but is now expected to cut rates in November. Forecasts predict a reduction to 4.75% at that point.
Chancellor Rachel Reeves acknowledged the challenges ahead, stating that economic growth over two quarters does not undo the stagnation of the past 14 years. She emphasized the need for continued efforts and realistic expectations regarding the pace of change in the economy.
The stagnation of the UK economy in July highlights both areas of growth and concern. While the services sector demonstrates promise, declines in other industries have contributed to an overall lack of expansion. The impact on interest rates and future economic policies remains uncertain, emphasizing the need for a comprehensive approach to addressing the challenges ahead.
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