UK economic growth stagnated in July 2024

The latest UK economic activity update reveals a stagnant picture for July 2024, with flat GDP growth and a mixed performance across sectors, likely to leave the Bank of England (BoE) in a delicate position as it takes into consideration future monetary policy decisions.

Key points:

• UK GDP showed no growth (0.0%) in July 2024after steady growth in June 2024.
• The the service sector grew by 0.1% in July 2024, while manufacturing fell 0.8% and construction fell 0.4%.
• In the three months to July 2024, the economy grew by 0.5% compared to the three months to April 2024.
• Information and communication was the largest positive contributor to services growth, growing by 0.8% in July 2024.
• Manufacturing output fell 1.0%, the biggest negative contributor to output.
• Consumer services rose 0.3% in July 2024, following a 0.7% decline in June 2024.

Link to ONS monthly GDP estimate for July 2024

The UK economy showed no growth in July 2024, with a slight expansion in the services sector offset by declines in manufacturing and construction.

While this lends some support to the idea of ​​future interest rate cuts from the Bank of England, it probably doesn’t seem like enough for the BOE to cut at the upcoming policy meeting and statement on September 19.

Market reactions

The pound sterling against major currencies: 5 min

GBP chart overlay against major currencies by TradingView

The initial market response to sterling was a net negative, with GBP falling against the majors except the Swiss franc and the Japanese yen.

This suggests that while the UK’s economic upgrade (and its support for future BOE rate cuts) was the main factor, broad risk sentiment was arguably an equally heavy weight on the GBP, given view power over “safe havens”.

Sterling took a bigger dive during the next US trading session with no new catalysts to address directly. This may have been a delayed reaction to UK data updates from US traders, but the bearish turn in broad risk sentiment is more likely to have been the bigger factor as US stocks, crypto and oil have dumped right at the opening of the US stock session.

This sharp turn in the market was likely a reaction to a slightly larger than expected update an hour before the open. This was undoubtedly another signal that inflation is not ready to go away, which is likely to prevent the Fed from getting too far away from future rate cuts.