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"Bad news for economy could be good news for borrowers", as GDP falls by 0.5% in July

ended 13. September 2023

The UK economy contracted by 0.5% in July, according to data published by the Office for National Statistics this morning, with the poor weather and industrial action key contributors to falls in all three main sectors. The data followed growth of 0.5% in June 2023. But experts have said bad news for the economy could be good news for borrowers.

According to Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages: “The poor health of the economy will be a significant factor during discussions at the next Monetary Policy Committee meeting about the base rate. Bad data for the economy could mean good news for borrowers. This, in turn, could provide a boost to the property market."

His views were shared by Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages: “I think the only people pleased by July's poor GDP data will be mortgage borrowers, as this may encourage the Monetary Policy Committee to slow or suspend further increases. However, one month's data doesn't suddenly change everything, but if this trend continues then rates will surely have to come down to stimulate growth.”

Meanwhile, Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial, was withering: “UK Plc is in free fall as the economy takes a huge step back. Despite this poor data, Andrew Bailey is expected to hike interest the base rate once more this month. Data like this should give his Monetary Policy Committee cause to pause their assault on inflation as the economy creeks at the seams. Inflation is set to come down sharply as previous rate hikes filter into the mix. The economy, on the other hand, cannot tolerate much more before a sharp recession becomes a reality.”

Graham Cox, founder of the Bristol-based broker, Self Employed Mortgage Hub, said July's poor GDP data could even see the Bank of England pause their rate increases at this month's meeting, which will benefit borrowers: “Andrew Bailey and the Bank of England may be given pause for thought with these latest GDP figures. Yes, there were mitigating factors like the poor weather and industrial action, but a 0.5% fall in GDP in one month is quite alarming and shows the economy is weakening and potentially heading into recession. This could mean there's no base rate increase on September 21st. If that happens, it's likely mortgage rates will continue to fall.”

But while John Choong, equity and markets analyst at investing comparison platform, InvestingReviews.co.uk, confirmed that this latest GDP print could influence the next base rate decision, he said the next set of inflation data will be key: “July's negative GDP read could provide some relief for investors and lenders alike as the Bank of England could stop its rate-hiking cycle as soon as November. With Andrew Bailey and co not willing to risk a recession unravelling after their disastrous response to inflation, the Monetary Policy Committee may view the recent contraction in services PMI as a forewarning that overtightening could spur undesired consequences. As such, it's more likely than not that markets will look at Wednesday's data favourably, for now. Nonetheless, sentiment can change in a heartbeat if next week's inflation data comes in hotter than expected, and could undermine any hope that a peak in the bank rate is near."

Peter Stamford, director of Alston-based Moor Mortgages agreed: "The upcoming inflation data will now be crucial, as it could determine the Bank of England's next steps and influence Downing Street's decisions."

Ranald Mitchell, director of Norwich-based independent mortgage broker, Charwin Private Clients, said July's GDP data will be a headscratcher for the MPC: “Another tricky meeting for the Monetary Policy Committee this month as they decide whether to press on in the battle against inflation or give businesses and the economy a breather.”

Charles Breen, director of Wellingborough-based mortgage broker, Montgomery Financial, concluded: "This data makes for bleak reading. Rising interest rates have hit homeowners and renters hard, impacting discretionary spending and affecting small businesses that rely on consumer demand."

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8 responses from the Newspage community

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Riz Malik
Independent Financial Adviser at R3 Wealth
The UK economy continues to limp forward waiting to be put out of its misery. The poor health of the economy will be a significant factor during discussions at the next Monetary Policy Committee meeting about the base rate. Bad data for the economy could mean good news for borrowers. This, in turn, could provide a boost to the property market. Another day of bad news for the incumbents of No 10 and No 11 Downing Street.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
UK Plc is in free fall as the economy takes a huge step back. There’s no need to play ‘Where’s Wally’ as we know he’s heading up the Bank of England. Despite this poor data, Andrew Bailey is expected to hike interest the base rate once more this month. Data like this should give his Monetary Policy Committee cause to pause their assault on inflation as the economy creeks at the seams. Inflation is set to come down sharply as previous rate hikes filter into the mix. The economy, on the other hand, cannot tolerate much more before a sharp recession becomes a reality.
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Justin Moy
Managing Director at EHF Mortgages
I think the only people pleased by July's poor GDP data will be mortgage borrowers, as this may encourage the Monetary Policy Committee to slow or suspend further increases. However, one month's data doesn't suddenly change everything, but if this trend continues then rates will surely have to come down to stimulate growth.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Services, production and construction output all contracted in July following respectable data in June. Reading between the lines, it seems like the UK economy is close to a tipping point, with the coming months determining which way it will go. Another tricky meeting for the Monetary Policy Committee this month as they decide whether to press on in the battle against inflation or give businesses and the economy a breather.
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John Choong
Senior Equity Research Analyst at Investing Reviews
July's negative GDP read could provide some relief for investors and lenders alike as the Bank of England could stop its rate-hiking cycle as soon as November. With Andrew Bailey and co not willing to risk a recession unravelling after their disastrous response to inflation, the Monetary Policy Committee may view the recent contraction in services PMI as a forewarning that overtightening could spur undesired consequences. As such, it's more likely than not that markets will look at Wednesday's data favourably, for now. Nonetheless, sentiment can change in a heartbeat if next week's inflation data comes in hotter than expected, and could undermine any hope that a peak in the bank rate is near. As such, investors ought to pay more attention to next week's CPI data rather than today's GDP print, which serves as a bit of white noise in the bigger inflation picture.
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Peter Stamford
Mortgage Expert at Stamford Home Finance
The UK economy appears to be facing some challenges, as the recent decline in GDP suggests that tough times may lie ahead, especially for the service and retail sectors. This data can be interpreted as a temporary relief, indicating a potential pause in the Bank of England's interest rate hikes, however, it can also be interpreted as an indicator of an imminent recession. The upcoming inflation data will now be crucial, as it could determine the Bank of England's next steps and influence Downing Street's decisions.
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Charles Breen
Founder at C B
This data makes for bleak reading. This is especially the case given that we have been lagging behind our peer nations on growth for well over a decade, There is a lot of systemic issues with the UK economy at the moment which is scuppering growth, just at a time when we desperately need it. We didn’t get the growth bounce back that most economies did post-Covid and Wednesday's data reflects this. The Government ought to focus on addressing the nation's lagging business investment, which is a significant factor in the UK's productivity gap with other G7 economies. Rising interest rates have hit homeowners and renters hard, impacting discretionary spending and affecting small businesses that rely on consumer demand. We are a predominantly service-based economy and if consumer spending and confidence is hit then so too is our GDP. The Bank of England's mismanagement of interest rates hasn’t helped people's confidence or the wider economy.
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Graham Cox
Director at Bridging Hub
Andrew Bailey and the Bank of England may be given pause for thought with these latest GDP figures. Yes, there were mitigating factors like the poor weather and industrial action, but a 0.5% fall in GDP in one month is quite alarming and shows the economy is weakening and potentially heading into recession. This could mean there's no base rate increase on September 21st. If that happens, it's likely mortgage rates will continue to fall.