UK economy flatlines in July for second month running

The UK economy flatlined in July for the second month in a row, according to the latest official figures, as the Chancellor said she was “under no illusion about the scale of the challenge” the country faces.

The Office for National Statistics (ONS) said gross domestic product (GDP) recorded no growth in July.Economists had been expecting GDP to edge up by 0.1% in the month, according to a consensus provided by Pantheon Macroeconomics.The UK held a general election at the beginning of the month, with some recent surveys suggesting a post-election increase in activity as businesses held out for political stability.

The latest data comes after the economy continued its recovery from recession at the end of last year, with growth of 0.6% between April and June.

It showed the country was turning a corner after dipping into a technical recession, which is defined as two consecutive quarters of negative growth.

This was underpinned by a more steady services sector which increased by 0.1% in July, but by 0.6% across the three months to July.

The accommodation and food and beverages category rose by 0.9%, with accommodation, including hotels, the biggest contributor with 2.2% growth recorded during the month.

ONS director of economic statistics Liz McKeown said: “The economy recorded no growth for the second month running, though longer term strength in the services sector meant there was growth over the last three months as a whole.

“July’s monthly services growth was led by computer programmers and health, which recovered from strike action in June. These gains were partially offset by falls for advertising companies, architects and engineers.

“Manufacturing fell, overall, with a particularly poor month for car and machinery firms, while construction also declined.”

“Restraint in spending”

Suren Thiru, economics director for the Institute of Chartered Accountants in England and Wales, said: “These figures confirm that the UK economy struggled for momentum in the aftermath of the general election as falling manufacturing and construction output caused overall activity to flatline in July.”

He also said growth could slow further in the coming months with “higher energy bills and expected tax rises likely to trigger renewed restraint in spending and investment”.

The Labour Government will set out its plans for public spending and taxes in the autumn Budget at the end of October.

Other experts suggested economic growth could pick up later in the year thanks to improved economic conditions, including lower inflation and interest rates.

“The bounce in growth in the early months of the year has faded over the summer,” said Ian Stewart, chief economist at Deloitte.

“Growth in the second half of this year is well below the levels seen in the first half, but with real incomes rising and interest rates starting to come down, consumer spending is likely to pick up, helping to sustain the recovery of the economy.”

Rob Wood, chief UK economist for Pantheon Macroeconomics, said GDP was “dragged down by erratic sectors” and that he is expecting a “substantial rebound” in economic growth in August, as manufacturing and construction recover.

He also said consumer spending could “keep rising as the prospect of interest rate cuts and a more political and a more stable political and economic environment allow households to lower their saving rate” during the second half of 2024.