FX.co ★ UK GDP Unexpectedly Stagnates In July

The UK economy remained flat in July, as declines in production and construction were counterbalanced by growth in the services sector, according to official data released on Wednesday.

The Office for National Statistics (ONS) reported that real gross domestic product (GDP) exhibited no growth for the second consecutive month, contrary to the expected 0.2 percent increase.

Despite a 0.1 percent rise in services output, this gain was nullified by a 0.8 percent decrease in production output and a 0.4 percent drop in construction output.

Over the three months leading to July, GDP rose by 0.5 percent, primarily driven by a robust 0.6 percent gain in services output. During this period, construction output increased by 1.2 percent, while production output saw a minor decline of 0.1 percent.

Separately, the ONS highlighted that the monthly decline in industrial output was primarily due to a 1.0 percent decrease in manufacturing, with additional minor reductions in electricity, gas, water supply, and sewerage sectors. These declines were partially offset by a significant 3.9 percent increase in mining and quarrying.

Capital Economics' economist Ruth Gregory noted that despite the stagnant economic performance in July, it does not necessarily indicate that the UK is on the verge of another recession. She further suggested that persistent inflation is likely to cause the central bank to maintain its current stance in September, though the latest data increases the likelihood of an interest rate cut in the near future.

In July, the visible trade deficit expanded to GBP 20.0 billion from GBP 18.9 billion in June, according to another report from the ONS. Meanwhile, the surplus in services narrowed to GBP 12.5 billion from GBP 13.6 billion in the previous month. Consequently, the overall trade deficit widened to GBP 7.5 billion from GBP 5.3 billion in June.