LONDON — U.Okay. gross home product fell by 0.5% in July, under the 0.2% contraction forecast in a Reuters ballot of economists.

Companies output was the primary drag, the Workplace for Nationwide Statistics stated, declining 0.5%. The economic system put in a better-than-expected efficiency for the second quarter as a complete, with the ONS reiterating its studying of 0.2% development. July’s shock dip meant the economic system shrank at its quickest tempo since December, in line with ONS figures.

It’s the newest signal of financial pressure within the greater rate of interest atmosphere. On Tuesday, figures confirmed U.Okay. mortgages in arrears jumped to a seven-year excessive within the three months to June.

Main funding banks trimmed their U.Okay. development expectations following the studying. Goldman Sachs revised its annual development forecast to 0.3% from 0.5% and JP Morgan downgraded to 0.4% from 0.6%, Reuters reported.

Nonetheless James Smith, developed markets economist at ING, stated in a be aware that “slicing by the noise, the economic system appears to be nonetheless rising, albeit fractionally.”

“We expect the economic system is more likely to roughly flatline over coming quarters – and a gentle recession cannot be dominated out,” he stated.

Paul Dales, chief U.Okay. economist at Capital Economics, stated the GDP figures could point out a light recession has already begun and “underlying development has misplaced momentum since earlier within the 12 months.”

Dales highlighted strikes and unusually moist climate as weighing on sure sectors, however stated output declined extra broadly, suggesting widespread weak spot.

“Even so, with wage development nonetheless uncomfortably robust, we suspect the Financial institution of England will nonetheless elevate rates of interest one ultimate time subsequent week, from 5.25% to five.50%,” Dales stated.

A possible concern for the central financial institution got here Tuesday, when knowledge confirmed annual development in pay excluding bonuses remained regular at 7.8%, the best on document. This was mixed with an indication of slight cooling within the labor market, as unemployment rose 0.5 share factors.

The British pound was 0.2% decrease towards the U.S. greenback at $1.245 at 8:40 a.m. London time Wednesday, because it additionally declined towards the euro.

Jane Foley, head of FX technique at Rabobank, stated the BOE confronted a “troublesome predicament” given robust earnings knowledge and slower U.Okay. development.

“Whereas the market is assuming {that a} September charge hike is a accomplished deal, the uncertainty for following conferences is rising. Clearly an excessive amount of tightening would danger a U.Okay. recession and this chance seems just a little stronger after at present’s month-to-month GDP report,” she stated through e-mail.

“Weaker development knowledge thus will increase the possibilities that Financial institution charge will attain its peak this month – an outlook which is weighing on the pound this morning.”