Britain’s economy stagnated for a second month in a row in July as manufacturing output dropped sharply, an inauspicious start for the new government of Prime Minister Keir Starmer who wants to accelerate the pace of growth.
Economic output showed no change in month-on-month terms in July, as it did in June, data from the Office for National Statistics showed today.
A Reuters poll of economists had pointed to a 0.2% month-on-month expansion of gross domestic product.
The figures are unlikely to sway expectations that the Bank of England will cut interest rates once more this year, probably in November rather than on September 19.
Sterling edged lower against the dollar and investors assigned a roughly 25% chance of a rate cut at next week’s meeting, slightly higher than yesterday.
Modest growth in the services sector, which expanded by 0.1% in July, was offset by declines in manufacturing and construction.
Hailey Low, associate economist at the National Institute of Economic and Social Research think tank, said the economy was likely to grow through the second half of 2024, albeit at a slower pace than early in the year when it rebounded from a shallow recession.
“All eyes will undoubtedly be on the upcoming (budget), especially for any policies critical to delivering sustained long-term economic growth – an agenda promised by the Labour government,” Low said.
In response to today’s data, finance minister Rachel Reeves said she was under no illusion about the scale of the challenge Britain faced and said change would not happen overnight.
She pointed to the announcement today that Amazon Web Services plans to spend £8 billion in the UK over the next five years to build data centres as a reason for optimism.
Britain’s economy has grown slowly since the Covid-19 pandemic, expanding just 2.3% between the fourth quarter of 2019 and the second quarter of 2024.
Economic output in July was 1.2% higher than its level in July 2023, the ONS said – lower than the 1.4% growth predicted by economists.
Starmer said he wanted the economy to achieve annual growth of 2.5% when campaigning in the run-up to July 4’s election – a rate that Britain has not regularly reached since before the 2008 financial crisis.
Separate trade data for July showed a sharp fall in goods exports to both European Union and non-EU countries. Services exports grew only marginally.
After adjusting for inflation, goods exports to non-EU countries fell to their lowest level since May 2020. Outside of the Covid-19 pandemic, it was the lowest reading since September 2011.