FT: UK economy failed to grow – Stagnation was in line with analysts’ expectations

Photo: Sky News

The UK economy stagnated in July, underlining the challenge facing the government ahead of a high-stakes November Budget.

Friday’s figure from the Office for National Statistics was in line with economists’ expectations and followed a 0.4 per cent expansion in June.

A slump in manufacturing in July offset increases in the services and construction sectors, the ONS said.

Chancellor Rachel Reeves has made economic growth her “number one mission”, but momentum has faltered in recent months. After a 0.7 per cent expansion in the first quarter — driven in part by a surge in exports to the US ahead of Donald Trump’s tariffs — GDP growth slowed to 0.3 per cent in the three months to June, ‘Financial Times’ notes.

In a sign of the pressure on the government to boost the economy, Prime Minister Sir Keir Starmer this week announced a new “Budget board” to align growth initiatives across Number 10 and the Treasury in the run-up to the Budget on November 26.

But economists also predict Reeves will be forced to increase taxes in the Budget, with some estimating the government will have to raise more than £20bn to fill a fiscal hole.

Friday’s GDP release comes as the Bank of England is expected to hold interest rates at 4 per cent at its meeting next week, following five cuts since the summer of 2024.

Policymakers face a delicate balancing act, with inflation at 3.8 per cent in July, far above the BoE’s 2 per cent, and increasing signs of a deteriorating labour market.

Following the release of the data, the pound slipped 0.2 per cent against the dollar to $1.355.

Real GDP is estimated to have grown by 0.2% in the three months to July 2025, compared with the three months to April 2025. This rate of growth has slowed since the peak of 0.8% growth in the three months to April 2025.

There was growth in two of the three main sectors in the three months to July 2025, with a rise of 0.4% in the services sector, which had the largest contribution to the increase in GDP during this period. Construction output also grew, by 0.6%, while production output fell by 1.3% over this period.

Output in consumer-facing services saw no growth in July 2025, following growth of 0.2% in June 2025. The largest negative contributions at the industry level came from wholesale and retail trade and repair of motor vehicles and motorcycles (down 1.4%), while the largest positive contribution came from retail trade, excluding motor vehicles and motorcycles (up 0.6%).

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