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The UK economy faced stagnation in July, following a significant decline in manufacturing output over the past year. The Office for National Statistics (ONS) reported that there was zero growth in the economy during the month, contrasting with the 0.4% expansion witnessed in June. Despite these monthly fluctuations, the ONS has now shifted its focus to measuring growth over a rolling three-month period, with the economy expanding by 0.2% in the three months leading up to July.
Pressure is mounting on the government to address the key priority of enhancing economic growth ahead of the Budget scheduled for 26 November. Chancellor Rachel Reeves is anticipated to outline tax and spending plans during the Budget, amidst increasing speculation that tax hikes may be necessary to adhere to the government’s self-imposed fiscal rules. The service sector experienced growth of 0.4% in the three months up to July, buoyed by strong performance in the health sector, computer programming, and office support services.
However, this growth was counteracted by a decline in output from the production sector, particularly in manufacturing. Manufacturing output contracted by 1.3% in July – the most significant decline seen since the same month last year. The UK economy saw a 0.7% expansion in the first quarter of the year, followed by a 0.3% growth between April and June. Despite these positive figures, the latest data from the ONS indicates a continued slowdown in economic growth over the past three months.
Yael Selfin, chief economist at KPMG UK, highlighted that the lackluster start to the third quarter may foreshadow future trends. With economic activity expected to decelerate in the latter half of the year, uncertainties stemming from the delayed Autumn Budget could further impede growth by postponing investment decisions until clearer policies emerge. The Treasury acknowledged the need for enhanced growth measures, emphasizing the importance of reversing years of underinvestment through their proposed plan for change. Conversely, opposition figures such as Shadow Chancellor Sir Mel Stride and Liberal Democrat Treasury spokesperson Daisy Cooper MP criticized the government’s handling of economic challenges, with concerns raised over borrowing costs and growth-stifling policies
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