U.K. pound and bond yields fall after wet weather damps British economy

Darren Morgan, the ONS’s director of economic statistics, said: “In July, industrial action by healthcare workers and teachers negatively impacted services and it was a weaker month for construction and retail due to the poor weather.”

Danni Hewson, AJ Bell head of financial analysis said: “July’s horrendously bad weather wreaked havoc with many of our summer plans. BBQs were cancelled, weddings were moved indoors, and shopping trips postponed. It’s hardly surprising that the economy shrank – unseasonable rainfall acted like a great big wet blanket.”

The contraction makes life difficult for the Bank of England as it considers whether to raise interest rates again next week following news on Tuesday that wage growth remains at a record high of 7.8%.

“The U.K.’s hokey cokey economy isn’t making life easy for businesses or central bankers,” said Nicholas Hyett, investment analyst at Wealth Club.

“With growth bouncing up and then down and interest rate rises ruled in and then out, forward planning is difficult. That tends to make businesses nervous and keen to preserve cash – bad news for future economic growth and investment,” Hyett added.

The pound
GBPUSD,
-0.06%
fell swiftly to a three-month low around $1.2440, but pared losses to trade down 0.2% at $1.2470. The 10-year U.K. government bond yield
BX:TMUBMUSD10Y
dipped 1 basis point to a two-week low of 4.40%.

London’s FTSE 100
UK:UKX
retreated 0.3%, with its losses contained by gains for housebuilder shares on hopes the Bank of England may now be more dovish given the economic backdrop.

Weighing on the benchmark were shares in BP
BP,
-2.79%,
which dipped about 1% after CEO Bernard Looney suddenly resigned.

“With a temporary replacement now confirmed [Murray Auchincloss, BP chief financial officer], BP will be hoping for markets to regard the situation as business as usual. There will, however, inevitably be uncertainty until such time as a permanent replacement is found and the company clarifies whether there will be any changes to its current strategy,” said Richard Hunter, head of markets at Interactive Investor.

Another notable mover was Inditex
ITX,
-0.47%.
Shares in the Madrid-listed fashion group fell nearly 4% after the owner of the Zara brand posted first-half sales which beat market forecasts but it warned of slowing growth over the summer.

Germany’s DAX
DX:DAX
fell 0.8% even though most carmaker stocks were stronger following news the European Union is launching an investigation into subsidies that China provides to electric vehicle makers.