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The UK economy experienced stagnant growth in July, according to official figures, following a significant contraction in manufacturing output.
Data from the Office for National Statistics (ONS) revealed zero growth for the month, aligning with economists’ forecasts after a 0.4% expansion in June.
Acknowledging the volatility of monthly data, the ONS indicated a shift in focus towards growth over a rolling three-month period. The economy demonstrated a 0.2% expansion in the three months leading up to July.
The government faces increasing pressure to deliver on its commitment to stimulate economic growth ahead of the upcoming Budget on November 26th.
Chancellor Rachel Reeves is expected to unveil the government’s fiscal strategy in the Budget, with growing speculation surrounding potential tax increases to meet established fiscal rules.
The ONS reported a 0.4% expansion in the service sector over the three months to July, bolstered by strong performances in healthcare, computer programming, and office support services.
However, this growth was offset by a decline in the production sector, including manufacturing. July saw a 1.3% contraction in manufacturing, marking the steepest monthly decline since July of the previous year.
The UK economy previously expanded by 0.7% in the first quarter of the year, followed by 0.3% growth between April and June.
The ONS noted that the latest figures suggest a “continued slowdown” in the economy over the past three months.
Despite this, the economy remains on track for growth in the third quarter.
Rob Wood, chief UK economist at Pantheon Macroeconomics, commented that the UK’s finances appeared “pretty resilient to the barrage of shocks faced this year”.
The release of this data precedes the Bank of England’s upcoming interest rate decision on September 18th, where policymakers will weigh subdued growth against persistent inflation.
Chancellor Reeves is widely anticipated to consider tax increases in the Budget to adhere to her self-imposed fiscal targets.
These are:
Estimates for the potential shortfall in public finances range considerably, from £18bn to £50bn. However, the chancellor has dismissed the higher estimate.
Given Labour’s commitment in its manifesto not to raise taxes on “working people” – specifically income tax, National Insurance, and VAT – there is increasing speculation about potential changes.
Businesses have long voiced concerns over the financial impact of increased employer National Insurance Contributions (NICs) and the minimum wage implemented in April.
Some have cautioned that increased business taxes could further impede growth, leading to a delay in hiring or investment decisions until the Budget details are clarified.
Yael Selfin, chief economist at KPMG UK, described the “weak start to the third quarter [as] a sign of things to come”.
“Economic activity is expected to slow in the second half of the year as the temporary factors which pushed up growth in the first half of 2025 begin to fade,” she stated.
“Additionally, the later date of the Autumn Budget could prolong some uncertainties for businesses, delaying investment decisions and acting as a drag on growth until more clarity emerges.”
Responding to the latest growth figures, a Treasury spokesperson acknowledged, “We know there’s more to do to boost growth because whilst our economy isn’t broken, it does feel stuck.”
“That’s the result of years of underinvestment, which we’re determined to reverse through our plan for change.”
Shadow chancellor Sir Mel Stride commented, “Any economic growth is welcome – but this government is distracted from the problems the country is facing.”
“While the government lurch from one scandal to another, borrowing costs recently hit a 27-year high – a damning vote of no confidence in Labour that makes painful tax rises all but certain.”
Liberal Democrat Treasury spokesperson Daisy Cooper MP stated, “The government talks of going full throttle on growth but the reality is they have left the handbrake on.”
“Their growth-crushing jobs tax risks hollowing out our High Streets and ministers’ refusal to jettison their short-sighted red lines on cutting red tape with Europe is holding back our exporters.”
The strength of the economy affects things like pay rises and how much tax the government can raise to pay for services.
The firm, known as MSD in Europe, said there has been a lack of investment in life sciences.
The womenswear brand says higher costs and tough trading conditions have taken their toll.
Card providers would be allowed to set their own contactless card payment limit, under the regulator’s plans.
The Conservative leader tells the BBC the UK could be forced to go “cap in hand” unless the government delivers a plan for economic growth.
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