Signs of persistent weakness in UK GDP are emerging

While the UK enjoys warm summer weather, the economic outlook remains subdued, with the latest GDP figures reflecting ongoing challenges. Earlier expectations that recent economic softness might be short-lived – perhaps due to temporary factors like tariffs or stamp duty charges – are now being reassessed, as signs of persistent weakness emerge.

This presents a complex backdrop for the Chancellor ahead of the October budget. Options for balancing the books look increasingly limited: raise taxes too far and it could slow the economy still further, raise borrowing and bond yields could spike and spending cuts could face another backbench revolt.

There is still room for optimism, however. Wage growth is still strong, which is giving households more spending power. Equally, the UK may start to reap the benefits of recent trade deals over the coming months, which may fuel growth. The recent rate cut could also generate marginal improvements in the economic outlook.

However, for the time being, the UK economy has a distinctly stagflationary feel about it. Inflation is the one thing that is running almost as hot as the weather, and ultimately, households will feel the strain. A financial cushion is the greatest defence against an uncertain climate.