LONDON — Deutsche Bank economists Sanjay Raja and Maui Brennan project that United Kingdom gross domestic product contracted by a modest 0.1% in July 2026, a pullback following a stronger-than-expected first half of the year. The forecast, issued in a research note to clients, points to services and production as the main drags, with construction expected to post only a marginal gain.
The projected dip comes after the UK economy expanded at a solid clip through the spring, supported by consumer spending and a resilient labour market. While a single monthly contraction is not unusual — monthly GDP data in the UK is volatile and frequently revised — the report adds to a mixed picture as the Bank of England weighs its next policy move.
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What is driving the slowdown
Deutsche Bank’s analysis suggests the July weakness is largely a normalization after a strong run, rather than the start of a deeper downturn. Services output, which accounts for the bulk of UK economic activity, likely softened after a busy second quarter. Production industries, including manufacturing, also faced headwinds from weaker external demand and ongoing supply chain adjustments.
Construction, meanwhile, is expected to eke out a small rise, helped by infrastructure spending and residential projects. But the overall picture is one of a deceleration, not a collapse.
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The economists’ call aligns with other recent indicators that show the UK economy losing some momentum. The S&P Global UK PMI for July fell to a six-month low, with new orders slowing across both manufacturing and services. Retail sales also cooled, though consumer confidence remains above its long-run average.
Implications for the Bank of England and markets
The softer GDP outlook could influence the Bank of England’s monetary policy path. After raising rates in early 2026 to combat sticky inflation, the central bank has signalled it is in no hurry to cut. However, a sustained slowdown in growth would increase pressure on policymakers to ease later this year.
Market pricing currently reflects a roughly 60% chance of a quarter-point rate cut at the November meeting, according to swaps data. A weak July GDP print, if confirmed by the Office for National Statistics on September 15, could firm up those expectations.
For businesses and households, the data matters because it signals whether the economy can sustain recent wage gains and investment. A mild contraction in one month is unlikely to change the broader trajectory, but a string of negative prints would raise concerns about a more pronounced slowdown.
Deutsche Bank’s forecast is not the only one pointing to a pause. The National Institute of Economic and Social Research (NIESR) last week projected GDP growth of 0.1% for the third quarter as a whole, down from 0.6% in the second quarter.
The official GDP release for July will be published by the ONS on September 15, 2026. Revisions to prior months are common, and the initial estimate could differ from the forecast. For now, the consensus view is that the UK economy is cooling, but not contracting sharply.
This article is for informational purposes only and does not constitute financial advice. Economic forecasts are inherently uncertain, and market conditions can change rapidly. Readers should conduct their own research or consult a qualified professional before making decisions based on this content.
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