The UK economy unexpectedly stagnated for a second consecutive month in July, in a blow to the Labour government.
The economy was held back by weakness in construction and manufacturing, with a meagre expansion in the key services sector, where output grew by 0.1 per cent, according to figures released on Wednesday from the Office for National Statistics.
The weakness comes after the economy also failed to grow in June, and underlines the challenge facing chancellor Rachel Reeves who has put growth at the centre of Labour’s agenda. Economists had expected growth of 0.2 per cent in July.
Reeves said: “I am under no illusion about the scale of the challenge we face and I will be honest with the British people that change will not happen overnight.”
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Sterling was steady against the dollar at $1.3098 immediately after the report.
After falling into a technical recession at the end of 2023, the UK’s economic growth outpaced that of any other G7 country in the first half of this year. The economy grew by 0.7 per cent in the first quarter and by 0.6 per cent in the three months ending in June.
However, most economists expect a slowdown in the second half of the year. The Bank of England forecasts 0.4 per cent growth in the three months to September, slowing to 0.2 per cent in the final quarter.
The economy’s return to growth in the first half was propelled by stronger household spending as price pressures and mortgage rates declined.
Lower inflation allowed the Bank of England to cut interest rates last month for the first time since 2020, reducing its key rate by a quarter percentage point to 5 per cent.
While inflation climbed to 2.2 per cent in July, above the BoE’s 2 per cent target, the central bank is expected to cut rates further before the end of the year. – Copyright The Financial Times Limited 2024
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