Growth stagnation should encourage a policy rethink, says IEA Economics Fellow
11 September 2024
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Commenting on GDP data showing 0% growth in July, Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:
“The lack of economic growth in both June and July strengthens the case for the Bank of England to keep cutting interest rates – and for the Chancellor to tread carefully in the October Budget. The Government also needs to rethink policies that could discourage firms from taking on new workers, or which raise energy bills even further.
“Monthly GDP data can be erratic – the less volatile three month comparison still showed healthy growth of 0.5%. The poor July numbers are also hard to square with the mostly positive tone of the business and consumer surveys. There may have been some temporary factors at play, including election uncertainty and the weird weather.
“Nonetheless, the incoming Government’s gloomy rhetoric about the state of the economy and the need for ‘tough decisions’ will not have helped. There are also clear signs of a renewed slowdown in other major economies, notably the euro area.
“The weak GDP figures may also reflect the continuing drag from the previous hikes in interest rates as more households have refinanced their mortgages. Remember that the Bank of England did not start to reduce interest rates until August – much later than many (including the IEA’s Shadow MPC) had recommended. More cuts are needed, and soon.”
ENDS
IEA spokespeople are available for live and pre-recorded broadcast
Contact: media@iea.org.uk / 07763 365520
Notes to Editors
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
“The lack of economic growth in both June and July strengthens the case for the Bank of England to keep cutting interest rates – and for the Chancellor to tread carefully in the October Budget. The Government also needs to rethink policies that could discourage firms from taking on new workers, or which raise energy bills even further.
“Monthly GDP data can be erratic – the less volatile three month comparison still showed healthy growth of 0.5%. The poor July numbers are also hard to square with the mostly positive tone of the business and consumer surveys. There may have been some temporary factors at play, including election uncertainty and the weird weather.
“Nonetheless, the incoming Government’s gloomy rhetoric about the state of the economy and the need for ‘tough decisions’ will not have helped. There are also clear signs of a renewed slowdown in other major economies, notably the euro area.
“The weak GDP figures may also reflect the continuing drag from the previous hikes in interest rates as more households have refinanced their mortgages. Remember that the Bank of England did not start to reduce interest rates until August – much later than many (including the IEA’s Shadow MPC) had recommended. More cuts are needed, and soon.”
ENDS
IEA spokespeople are available for live and pre-recorded broadcast
Contact: media@iea.org.uk / 07763 365520
Notes to Editors
- At its July meeting, the IEA’s Shadow Monetary Policy Committee urged the Bank of England to cut interest rates immediately, warning that excessively tight monetary policy could become a drag on economic growth. SMPC minutes can be found here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
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