The latest update on U.K. economic activity shows stagnation in July 2024, with GDP growth flat and mixed sector performance. This is likely to put the Bank of England (BoE) in a challenging position as it weighs future monetary policy decisions.
Key Points:
- U.K. GDP remained flat (0.0%) in July 2024, following zero growth in June 2024.
- The services sector saw modest growth of 0.1%, while production dropped by 0.8% and construction declined by 0.4%.
- Over the three months leading to July 2024, the economy expanded by 0.5% compared to the previous three-month period ending in April 2024.
- The information and communication sector was the strongest driver of services growth, rising by 0.8% in July.
- Manufacturing output fell by 1.0%, marking the largest negative impact on production.
- Consumer-facing services rebounded with a 0.3% increase in July, after a 0.7% drop in June 2024.
The U.K. economy showed no growth in July 2024, with a modest expansion in the services sector offset by declines in production and construction.
While this supports the notion of potential future rate cuts from the Bank of England, it likely won’t be enough to prompt a cut at the upcoming policy meeting and statement on September 19.
Market Reactions
British Pound vs. Major Currencies
Sterling initially saw a negative response, falling against most major currencies except the Swiss franc and Japanese yen. This indicates that while the U.K.'s economic update, supporting potential BOE rate cuts, was a key factor, broader risk-on sentiment also weighed on the Pound, as it gained strength against “safe haven” currencies.
Sterling took a steeper dive during the U.S. trading session, with no direct new catalysts. This could have been a delayed reaction to U.K. data from U.S. traders, but more likely, the bearish shift in broad risk sentiment played a bigger role as U.S. equities, crypto, and oil dropped sharply at the start of the U.S. equity session.
This sudden market shift likely followed the release of a slightly higher-than-expected U.S. Core CPI report, which signaled that inflation remains persistent. This suggests the Federal Reserve may hold off on aggressive rate cuts, further contributing to the market's risk-off mood.
