UK economy unexpectedly flatlines as no growth recorded for second month in a row – what it means for your money
THE UK economy has unexpectedly flatlined for the second month in a row, with no growth recorded in July, new figures have found.
Gross Domestic Product (GDP) did not rise at all during the month, the Office for National Statistics said.
While the figures show no growth in the month, overall GDP rose by 0.5% in the three months to July.
Services output grew by 0.1% in July after falling by 0.1% the month prior.
Elsewhere, construction output decreased by 0.4% in July following a growth of 0.5% in June.
GDP is a measure of the economic output of companies, individuals and governments and of how healthy an economy is.
Economists had been expecting GDP to edge up by 0.1% in the month, according to a consensus provided by Pantheon Macroeconomics.
Rob Wood, chief UK economist for Pantheon Macroeconomics, said GDP was “dragged down by erratic sectors” that are expecting a “substantial rebound” in economic growth in August, as manufacturing and construction recover.
He added that consumer spending could “keep rising” as the prospect of interest rate cuts and more stable political and economic environment allows households to “lower their saving rate” during the second half of 2024.
It comes following growth of 0.6% between April and June.
Previously, GDP showed no growth in April, grew by 0.4% in May then did not grow again in June, due to strike action.
The latest data comes as the UK continues to recover from the fall out of a slight recession last year.
However, two months of stagnating growth could quash hopes of a stronger recovery from the recession.
In response to the data, Chancellor Rachel Reeves said she was under “no illusion” about the scale of the challenge the government faces to improve the economy.
She explained: “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.”
Meanwhile, Liz McKeown, ONS director of economic statistics, said the growth recorded in services was fuelled computer programmers and health which “recovered from strike action in June.”
She explained: “These gains were partially offset by falls for advertising companies, architects and engineers.”
A healthy economy is one where GDP is growing but if it stalls or is falling, it’s bad news for businesses and consumers.
Today’s figures come just a week before the Bank of England’s Monetary Policy Committee (MPC) will decide on whether to raise, cut or hold interest rates.
Last month, the central bank reduced the base rate from 5.25% to 5%, marking the first cut since 2020.
The base rate sets the rate of borrowing charged to smaller high-street banks and lenders, which is passed on to consumers.
GDP growth or decline can sometimes have an impact on how this decision is played out, with the health of the economy as one of the key factors in setting the rate.
The BoE will reveal their decision next Thursday, September 19.
Plus, yesterday we revealed unemployment has fallen again in the three months to July as wage growth continued to slow.
What it means for your money
GDP is a measure of the economic output of companies, individuals and governments.
It’s also a measure of how healthy and prosperous an economy is.
If GDP is going up, it generally means people pay more in taxes because they’re earning and spending more.
This means more money for the government which can spend the extra cash on public services such as schools and hospitals.
When the economy shrinks, this can go in reverse, meaning households can see their standard of living drop.
If GDP falls, it means businesses struggle and may lay off staff from work as well.
Alice Haine, personal finance Analyst at Bestinvest said that personal budgets are still recovering from the fall out of high inflation and wider political unrest.
“Even those enjoying a mini boost from an inflation-beating pay rise may feel some unease about what’s to come next.
“Consumers and businesses may now be hoping that the subdued GDP data may prompt the Bank of England to push ahead with another rate cut at its monetary policy meeting next week. “
She added: “Many economists had been expecting the BoE to hold off on a second rate cut until later in the year, but two months of stalling growth have the potential to catalyse a shift in stance.”
Alice explained that concerns over what changes Chancellor Rachel Reeves will deliver in her Budget on October 30 are likely to further impact consumer attitudes towards their money.
“More households to preserve cash in preparation for any hit further tax rises could deliver.”
How to protect your finances
If you are concerned about your finances, it is important to remember that there are ways to keep your cash safe.
Make sure you go through all your bank statements and accounts so you know what your income and outgoings are every month.
You can save money by moving to a cheaper mobile phone tariff or by axing subscriptions you don’t need like Netflix or Amazon Prime.
If you’ve got any outstanding debts, don’t ignore them as it will only make your financial situation worse.
Stay on top of what you owe and always repay priority debts.
There are plenty of organisations where you can seek debt advice for free.
You should also check what benefits you are eligible for as you might be able to claim without realising.
Entitledto’s free calculator works out whether you qualify for various benefits, tax credits and Universal Credit.
If you don’t want to register, consumer group moneysavingexpert.com and charity StepChange both have benefits tools powered by Entitledto’s data that let you save your results without logging in.
There is also emergency funding available for struggling households, which is dished out by local councils.
The Household Support Fund is designed to help those on a low income or benefits cover the cost of food, energy and general living costs.
What help is available varies depending on where you live as each council sets its own eligibility criteria.
It’s worth getting in touch with your local authority to see what you might be able to get.
You can find what council area you fall under by using the government’s council locator tool online.
What this means for your personal finances
GROSS domestic product (GDP) is one of the main indicators used to measure the performance of a country's economy.
When GDP goes up, the economy is generally thought to be doing well although today’s figures aren’t as strong as hoped.
Negative growth often brings with it falling incomes, job cuts and lower consumption.
The Bank of England (BoE) uses GDP as one of the key indicators when it sets the base interest rate.
This decides how much it will charge banks to lend them money, and is a way to try to control inflation and the economy.
So, for example, if prices are rising too fast, the BoE could increase that rate to try to slow the economy down. But it might hold off if GDP growth is slow.
The BoE cut interest rates twice in March due to coronavirus.
Base rate cuts means mortgage borrowers now typically benefit from lower rates, but at the other end of the scale savers earn less on their savings.
To measure GDP, the Office for National Statistics (ONS) collects data from thousands of UK companies.
Andrew Wishart, UK economist at Capital Economics, told The Sun the full impact of the crisis on jobs and businesses will only become apparent once the government starts to withdraw its support.
The research firm expects unemployment to double from 4 per cent to 8 per cent, with the same number of companies likely to go bust.
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