Commenting on this morning’s UK GDP data Melanie Baker, Senior Economist at Royal London Asset Management, said:
“Today’s picture of falling output in July follows a relatively strong June and likely partly reflects the wet weather we have had.
“For now, the picture of the economy coming from GDP data is still not awful, but not great. Given how much monetary policy tightening we’ve had and the cost of living crisis, it is still somewhat surprising that the UK economy has managed to avoid recession so far. I am not convinced that will continue to be the case and I continue to pencil a modest technical recession into my forecast. PMI business surveys have started to look consistent with falls in private sector output again and the labour market – which had been robust in recent quarters – is showing more signs of weakness.
“We’ve still got a few data points to go before the Bank of England’s next monetary policy decision on 21st September. The CPI release will be the most important of those in my view and weigh more on their thinking than today’s GDP figures. I expect the Bank of England to hike rates again by the end of the year, though they might choose to keep rates on hold in September and wait for more data and their next forecast round in November. Ultimately, I think the domestic inflation picture remains too strong for them to be comfortable keeping rates at their current level.”
The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.