Pressure mounts on Reeves as economy flatlines – Daily Business

Pressure is mounting on the Chancellor after official figures showed the UK economy failed to grow in July.

The Office for National Statistics (ONS) said the economy saw zero growth, following a 0.4% expansion in June.

However, over the three months to the end of July, the economy grew by 0.2% compared with the previous three months, the ONS said.

The data adds to pressure on Rachel Reeves to deliver on the government’s key priority of boosting economic growth.

Businesses are braced for further tax rises in the Budget on 26 November and the prospect of another interest rate cuts this year is finally balanced.

The UK’s statistics body said the service sector performed well, helped by the health sector, computer programming and office support services. However, this was offset by a weak performance in the manufacturing sector.

The data coincided with figures from the Scottish Retail Consortium (SRC) and KPMG which found sales were up 1.1% last month, year-on-year, providing some hope for the crucial Christmas shopping season.

SRC director David Lonsdale said: “Scottish retail sales grew during August, a decent performance after an underwhelming three months.”

Analysts warned that the GDP figures showed the Chancellor has her work cut out to get the economy growing.

Jonathan Moyes, head of investment research at Wealth Club said:  “After seeing a strong beat for GDP in June, surprisingly strong retail sales figures and upbeat survey data over the summer, optimists would be forgiven for thinking the UK economy was defying the doubters. That wasn’t to be this month, the UK economy is firmly back in the slow lane.

“Stagflation remains the key challenge for policy makers. With anaemic growth and inflation running at 3.8%, the Bank of England may feel its hands are tied. Overdo it on rate cuts to help revive an ailing economy and you could risk runaway inflation. 

“The key lever to revive our fortunes and get the economy moving again must then therefore be a fiscal one. The continued weakness in the UK economy will put pressure on the government to revise its approach to growth.

“The chorus of voices shouting you cannot tax your way to growth will grow ever louder as the evidence piles up. The chancellor appears to be running out of road.”

Professor Joe Nellis, economic adviser the accountancy and advisory firm MHA, said: “This is worrying news for the Chancellor, making her decisions at the Budget in November even more difficult than previously expected.

“With the Prime Minister taking firmer control of economic policy, the Chancellor finds herself under increased pressure. The economy has been edging forward rather than slipping back into stagnation, but she will be praying for growth to accelerate in the coming months.

Ben Jones, CBI lead economist, said: “Speculation about new business taxes is casting a long shadow. Amid rising cost pressures, firms are already holding back on hiring and investment and are wary of weeks more Budget uncertainty. 

“The government cannot tax its way to growth and continue to raid corporate coffers.” 

Luke Bartholomew, deputy chief economist, at Aberdeen said: “UK GDP flatlined in July, as expected, in part due to payback from very strong growth in June. The monthly GDP data are very volatile month to month and it can be hard to extract signal from the noise.

“But with the labour market still deteriorating we expect H2 GDP overall to slow from the pace of H1. The key questions for the Bank of England though are more about inflation than growth right now, so this report is unlikely to change much in the way of the Bank’s thinking. We still expect one more interest rate cut later this year, but this is looking a finely balanced call.”