Key events
Ruth Gregory, deputy chief UK economist at Capital Economics, said:
The economy stagnated in July, but that doesn’t mean the UK is on the cusp of another recession and we still think the stickiness of inflation will keep the Bank on hold in September.
We still think a mild slowdown in GDP growth to more normal rates of 0.3% quarter-on-quarter later this year is more likely than a sudden drop back into recession.
For now, we are sticking to our view that the Bank of England will keep interest rates unchanged in September before cutting rates again in November. But today’s data has made an interest rate cut next Thursday a bit more likely.
Luke Bartholomew, deputy chief economist at abrdn, said:
The economy performed a little softer than expected in July, with GDP flatlining. Industrial production and manufacturing were also weak, rounding off a set of weak UK data.
As ever, though, monthly activity numbers are very volatile month to month, often reflecting more noise than signal. The broader trend remains solid, although it is likely that the underlying pace of growth will slow somewhat over the second half of the year.
Certainly, there is no reason yet for the Bank and England to feel it needs to speed up the pace of rate cuts, and we expect the Bank to keep interest rates on hold next week.
Rachel Reeves: ‘Change will not happen overnight’
Chancellor 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.
Our story is here:
Bloomberg’s political editor Alex Wickham said on X:
NEW: The UK economy unexpectedly stagnated for a second month in July, suggesting that a rapid recovery from recession is now losing momentum
GDP unchanged after flatlining in June too
Economists had forecast a 0.2% increase
Via @tomelleryrees @PhilAldrick @irinaanghel12
— Alex Wickham (@alexwickham) September 11, 2024
Services activity picked up by 0.1% in July following a 0.1% dip in June, but did not show the expected strong pick-up while industrial production declined by 0.8%.
Construction output was down by 0.4% in July.
Services grew more strongly, by 0.6%, in the three months to July. There was also a 1.2% increase in construction output, while production dipped by 0.1% over this period.
Professional, scientific and technical activities was the largest positive contributor to the rise in services output over the three month-period, up by 2%. The next largest contribution came from wholesale and retail trade; repair of motor vehicles and motorcycles, where output increased by 0.7%.
UK economy continues to stagnate in July
The UK economy continued to flatline in July, but grew by 0.5% in the three months to July, according to the latest official figures.
Economists had expected GDP to rise by 0.2% in July. In June, there was also zero growth.
Dollar falls 1% against yen as Harris puts Trump on defensive
The dollar fell by more than 1% against the yen to its weakest level of the year, after Kamala Harris put Donald Trump on the defensive in the first and only television debate in the presidential race last night.
The yen also got a boost from Bank of Japan board member Junko Nakagawa, who reiterated in a speech that the central bank would continue to raise interest rates if inflation and the wider the economy move in line with its forecasts.
The dollar dropped as much as 1.2% to 140.71 yen, a level not seen since 28 December before recovering slightly.
Economists at Daiwa Capital Markets said:
After economic output moved sideways in June, we expect a return to expansion in July with growth of 0.3% month on month, which would leave the three-month growth rate unchanged at a solid 0.6%. Growth will in part reflect the pickup in retail sales of 0.5% that month, when a long-awaited improvement in the weather boosted demand.
Surveys also pointed to growth across the services sector as well as construction, while the manufacturing output PMI rose to the highest level in more than two years. So, although factory production grew in June by the most in four months, we expect the expansion in GDP in July to be broad-based.
Introduction: UK economy forecast to have returned to growth in July
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK economy is expected to have returned to growth in July, after flatlining in June.
The latest GDP figures from the Office for National Statistics, out at 7am, are expected to show that the economy expanded by 0.2% in July, after zero growth in June.
Deutsche Bank economist Sanjay Raja, who is predicting a 0.3% rise in GDP in July, said:
What’s driving the increase in output? Mainly, a stronger rebound in services activity, led by a pick up in retail and leisure services. Industrial production output also likely expanded to start the third quarter, lifted in large part by an increase in oil production, and to a slightly lesser extent, manufacturing output. Last but not least, we expect the construction sector to see its third monthly consecutive rise (0.2% month on month).
Where are risks to our nowcast skewed? To the downside, with our modelled estimates having a downward skew relative to our point estimate.
Looking ahead, we continue to see GDP expanding at a steady clip, averaging roughly 0.4% quarter on quarter in the second half. It’s early days, but risks to our quarterly nowcasts are skewed to the upside, raising upside risks to our annual growth projection too.
We are also getting figures for trade and industrial production at the same time.
It’s also US inflation day. The annual headline rate is expected to have fallen to 2.6% from 2.9%, while the core rate, which strips out volatile food and energy costs, is set to have stayed at 3.2%.
Investec economist Ryan Djajasaputra said:
July’s outturn provided further reassurance that inflation remains on a disinflationary path, with the 2.9% print being the first below 3% since March 2021. Early consensus estimates are for a further moderation to 2.6%.
Also today:
The British steel industry is braced for 2,500 job cuts at the Port Talbot steelworks, with thousands more jobs at risk in the UK, as the government prepares a taxpayer-backed deal for the south Wales plant.
The business secretary, Jonathan Reynolds, is expected to outline this morning the details of a rescue deal which will see the government hand the historic Welsh plant’s owners, Tata Steel, £500m to build a new electric furnace – but at the cost of huge redundancies from the closure of its last remaining blast furnace.
Natarajan Chandrasekaran, the chair of Tata Group, told the Financial Times on Tuesday that talks were “going well” and it was “very close” to agreeing a deal.
It is understood the government, which previously promised to “push for job guarantees”, has been unable to protect these jobs, with 2,500 still expected to go in the coming months.
The Agenda
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7am BST: UK GDP for July (forecast: 0.2%, previous: 0%)
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7am BST: UK trade, industrial production for July
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1.30pm BST: US inflation for August (forecast: 2.6%, previous: 2.9%)
