The latest update on UK economic activity reveals a stagnant picture for July 2024, with flat GDP growth and mixed performance across sectors, likely leaving the Bank of England in a delicate position as it considers future monetary policy decisions.
Key points:
- UK GDP recorded no growth (0.0%) in July 2024after steady growth in June 2024.
- the The services sector recorded a growth of 0.1%. In July 2024, while Production 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.
- The information and communications sector was the largest positive contributor to services growth, rising by 0.8% in July 2024.
- Industrial output fell 1.0%, the largest negative contributor to output..
- Consumer services rose 0.3% in July 2024, after falling 0.7% in June 2024.
Link to the monthly GDP estimates from the National Statistics Office for July 2024
The UK economy registered no growth in July 2024, with a slight expansion in the services sector offset by declines in output and construction.
While this somewhat supports the idea of future interest rate cuts by the Bank of England, it is arguable that it does not seem sufficient for the Bank of England to cut interest rates at its next policy meeting and statement scheduled for September 19.
Market Reactions
British pound against major currencies: 5 minutes
Comparison between the British pound and major currencies Chart by TradingView
The initial market response to the pound was net negative, with the pound falling against major currencies, except for the Swiss franc and the Japanese yen.
This suggests that while the UK economic update (and its support for future BoE rate cuts) was the main driver, broader risk sentiment was undoubtedly weighing heavily on sterling given the strength against “safe havens”.
The pound fell further during the following US session, with no fresh catalysts to point to directly. This may have been a delayed reaction to UK data updates by US traders, but the broader bearish shift in risk sentiment was likely the bigger driver as US stocks, cryptocurrencies and oil fell at the open.
The sudden market shift was likely a reaction to the slightly higher-than-expected U.S. core CPI update an hour before the open. This was arguably another sign that inflation is not ready to go away, which is likely to prevent the Federal Reserve from being tempted to cut interest rates in the future.