UK economy stagnates as cost of living crisis hits spending power

The UK economy stagnated in the three months to July, as the cost of living crisis hit household finances and business activity.

UK output was flat in the period compared with the previous three months, according to data from the Office for National Statistics released on Monday. Economists polled by Reuters had expected a 0.1 per cent expansion.

The growth rate has lost momentum since the start of the year as rising costs hit businesses and consumers. Inflation soared to a 40-year high in July, hitting real incomes and profits.

Some economists think that the freeze in average annual household energy bills at £2,500 over the next two years, announced last week by the new prime minister, will prevent a severe economic downturn.

“A recession over the coming quarters no longer looks likely, following the new PM’s energy price announcement,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Output grew 0.2 per cent between June and July, largely reflecting the loss of two working days in June linked to the jubilee celebration, when the economy contracted.

The services sector grew by 0.4 per cent in July, rebounding from June and driving gross domestic product growth. Production fell by 0.3 per cent after a fall of 0.9 per cent in June, with construction also showing two consecutive sharp contractions.