UK economy grows 0.5% in Q3 despite July stagnation

The UK economy experienced a growth of 0.5% over three months, despite stagnation in July, raising concerns about the potential impact of upcoming tax increases. Official data revealed that the recovery was stalling, particularly in June and July, which was worse than anticipated by economists. The Bank of England faces pressure to consider interest rate cuts, although markets are looking towards November for any changes. Chancellor Rachel Reeves acknowledged the challenges ahead, emphasizing the need for long-term economic solutions after years of stagnation. The general election held at the beginning of the month may have contributed to businesses adopting a wait-and-see approach, impacting economic activity. The services sector showed some resilience, with a 0.1% increase in July and a 0.6% rise over the three months leading to July. However, declines in manufacturing and construction sectors were noted, particularly in car and machinery production. Economists predict that the growth trajectory may slow further due to rising energy costs and anticipated tax hikes, which could dampen consumer spending and investment. Despite the positive growth figures, the overall economic landscape remains uncertain, with inflation pressures causing hesitation among rate setters regarding immediate interest rate cuts. The mixed performance of various sectors highlights the fragility of the recovery, as gains in services were offset by declines in other areas. The outlook for the UK economy remains cautious, with potential challenges ahead as the government prepares to implement its fiscal policies.