Expectations of a base rate cut have increased following poorer-than-expected GDP figures were released over the weekend.
The economy contracted by 0.1%, the Office for National Statistics says, after also shrinking in April. Construction, manufacturing and in particular retail sales were described by the office as “very weak”. For the April to June period, the UK economy is now forecast to show combined growth of 0.1% to 0.2%.
The data now adds to expectations the Bank of England will cut interest rates next month.
“The lack of momentum in the UK economy indicated by these sluggish figures means that an August interest rate cut currently looks inevitable, despite the recent spike in inflation” says Suren Thiru, economics director at accountancy body ICAEW.
Lindsay James, investment strategist at Quilter, comments that recent U-turns on welfare cuts by Chancellor Rachel Reeves means a “spotlight has been well and truly shone on the UK economy in the past week or so”.
Reeves herself says: “Getting more money in people’s pockets is my number one mission. While today’s figures are disappointing, I am determined to kickstart economic growth and deliver on that promise.
“The choices we have made in our first year in government have seen us extend the £3 bus fare cap, fund Free School Meals for over half a million more children, press ahead with plans to deliver free breakfast clubs for every child in the country and increase the National Minimum and National Living Wage, giving a pay rise to 3m workers.
“There’s more to do, that’s why in the Spending Review we boosted investment and jobs, through better city region transport and record funding for affordable homes, as well as backing major projects like Sizewell C.”
The Bank of England’s next rate decision will be on August 7.
