Estimates from the Office for National Statistics suggest gross domestic product (GDP), which is the value of the goods and services produced in the UK, showed no growth in July having also flatlined in June.
It means GDP is estimated to have grown by 0.5% in the three months to July 2024 compared with the three months to April 2024.
This lack of growth has come as a surprise – the UK economy was expected to have experienced a boost in July following Labour’s landslide victory in the General Election and events such as the Euros and Olympics.
But it may also mean the Bank of England’s decision makers may need to take action in the form of an interest rate cut. With the next decision due to be made next week – on Thursday 19 September – some think a reduction could be imminent.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Consumers and businesses may now be hoping that the subdued GDP data may prompt the Bank of England to push ahead with another rate cut at its monetary policy meeting next week.
“The quarter point rate cut at the start of last month is already filtering through to personal finance products with mortgage rates in retreat and the top savings deals easing from their highs.
“Those struggling with heavy debts or high home loan repayments will now be hoping for another cut sooner rather than later.”
She added: “The BoE has signalled it is prepared to reduce interest rates again but insists it must evaluate domestic price pressures carefully before making another move.
“Many economists had been expecting the BoE to hold off on a second rate cut until later in the year, but two months of stalling growth have the potential to catalyse a shift in stance.”
Haine is not the only one who is predicting a cut to interest rates.
Anita Wright, an independent financial adviser at Bolton James was speaking to the Newspage agency. She said flat GDP was a ‘clear signal’ the UK economy was stalling.
“The Bank of England has been walking a fine line between controlling inflation and avoiding a downturn,” she continued.
“With growth stalled and consumer confidence shaky, [the Bank of England] faces mounting pressure to reconsider its approach. Inflation may still be a pressing concern, but the narrative is shifting, and stagnant growth can’t be ignored any longer. The Bank of England may be forced to reassess its stance sooner rather than later, especially if further economic weakness creeps in over the next few months.
“While inflation has dominated policy decisions, the BoE can’t afford to let a recession brew in the background. If growth remains stuck, a rate cut before the year’s end could become a necessary tool to spark momentum. It’s no longer a matter of if they’ll reduce the base rate: it’s a matter of how soon they’ll pull the trigger.”
What does this mean for your mortgage?
Mortgage rates are continuing to fall with Barclays and Halifax being amongst the lenders who have made price cuts since we published our update on fixed rate mortgage cuts earlier this week.
This, combined with another interest rate cut from the Bank of England, will of course be good news to borrowers.
But flat GDP is a sign the cost-of-living struggles persist for households. And brokers are warning those people coming off historically low mortgage rates will still need to prepare for a big jump in prices when they remortgage.
Emma Jones, managing director at Whenthebanksaysno.co.uk also speaking via Newspage said: “A rate cut is desperately needed on the back of this concerning GDP data. Let’s hope the Bank of England cut again before the year is out. It’s a sure sign that people are struggling so a rate cut will ease the pain for many.
“The next six months are still going to be very painful for more borrowers coming off long-term, ultra-low rate fixed deals.”
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