The stellar sporting summer saved Britain’s economy from an embarrassing slip backwards in July as disappointing official figures showed GDP failed to grow in the month.
The Office for National Statistics (ONS) said GDP flatlined for the second month running although it advanced 0.5% over the three months to July.
But with the City penciling in growth of 0.2% for July this will be a setback for Rachel Reeves as she prepares for her “growth agenda” Budget in October and suggests that the robust recovery from last year’s brief recession in the first half of 2024 may have run out of steam. It may also bring forward the date of the next interest rate cut from the Bank of England.
The ONS said the extraordinary run of major sporting events including the Euros, the Olympics and Wimbledon may have boosted the arts, entertainment and recreation sectors, as well as the high street and travel agents.
It said in its commentary: “While many of these events normally occur in July each year, this year many businesses reported higher turnover than in previous years.”
Without that boost it is possible GDP could have contracted slightly.
The dominant services output grew by 0.1% in July while production output, which includes manufacturing, decreased by 0.8%. Construction output decreased by 0.4% in July.
Chancellor of the Exchequer, Rachel 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. Two quarters of positive economic growth does not make up for fourteen years of stagnation.
“That is why we are taking the long-term decisions now to fix the foundations of our economy, including today’s announcement of £8 billion of new investment from Amazon Web Services, that will help rebuild Britain and make every part of the country better off.”
Lindsay James, investment strategist at Quilter Investors, said :“The UK economy was expected to continue to show modest momentum, but signs suggest that the growth from the first half of the year is now stuttering. July’s estimate has shown the UK economy had no growth, with growth for the previous three months coming in slightly below expectations at 0.5%.
“Given the mood music emanating from the government and the economic inheritance it has received from the Conservatives, the government needs to be careful not to overcorrect with its narrative around tax rises and the potential this has to put off investment.
“This month may just be a blip however, given recent positive noises that have been sounded about the state of the wider economy, especially as rate cuts will continue to be delivered over the coming year. Expectations for the UK economy have gradually shifted higher, with the IMF now forecasting UK GDP growth of 0.7% in 2024, up from 0.5% previously, whilst another measurement of economist forecasts has seen it rise from a low of 0.3% in March to 1% currently. The government will hope today’s figure does not dampen those forecasts.”
Sarwar Khawaja, chairman, executive board, Oxford Business College, said: “The UK economy's stagnation in July is deeply concerning. While we hoped to see modest growth, the data paints a picture of an economy treading water.
“The services sector has run out of steam, and even the boost from summer sporting events couldn't offset declines in production and construction. The overall picture of a broader weakness across the economy can't be easily dismissed.
“High interest rates are clearly taking their toll, squeezing businesses and consumers alike. Companies are caught between rising costs and pressure to increase wages. Unfortunately, this financial vice is likely to lead to increased redundancies as firms struggle to balance their books.
