Business
UK economy flatlined in July after sharp contraction in manufacturing
The UK economy flatlined in July as the biggest contraction for a year in the manufacturing sector offset a bumper month on the high street.
The Office for National Statistics (ONS) said there was zero growth in gross domestic product (GDP) month on month in July, against 0.4 per cent growth in June.
It came after the manufacturing sector saw activity pull back by 1.3 per cent – the biggest contraction since July 2024. This held back growth in the wider economy, with the services sector up 0.1 per cent thanks to an expansion of 0.6 per cent in retail and construction growing by 0.2 per cent.
Liz McKeown, director of economic statistics at the ONS, said: “Growth in the economy as a whole continued to slow over the last three months. While services growth held up, production fell back further.
“Within services, health, computer programming and office support services all performed well, while the falls in production were driven by broad-based weakness across manufacturing industries.
“In the latest month, GDP showed no growth, with increases in services and construction offset by falls in production. Falls in production were driven by broad-based weakness across manufacturing industries.”
Services output grew 0.4 per cent and construction by 0.6 per cent across the three months to July, contributing to an overall rise of 0.2 per cent for the economy across the summer period.
However, that means a third consecutive slowdown period as, in one expert’s words, the economy “grinds to a halt”. Lindsay James, investment strategist at Quilter, pointed out that even the areas that showed growth in the last three months are slowing – a direct consequence of the government raising costs for employers.
“After a positive first half of the year, UK economic growth is slowly grinding to a halt once again,” said Ms James.
“GDP failed to grow month-on-month in July, and slowed to just 0.2 per cent on a three-monthly basis. This increase was driven primarily by the services and construction sectors, but production output fell. However, growth is slowing in these sectors and is likely the result of actions taken by the Labour government now being realised, with the increase in employer national insurance contributions having a significant impact on business confidence.
“With the summer now over and the economy supposedly getting out of its slumber, we now face continuing uncertainty in the lead-up to the budget in November given the precarious position the chancellor finds the public finances in. It is estimated that the fiscal hole that needs to be plugged is anywhere between £20bn and £50bn. While that is a wide range, it means one thing for a government that has shown it will struggle to cut spending – more tax rises.”
On the latest figures, a Treasury spokesperson said: “We know there’s more to do to boost growth, because while 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. We’re making progress: growth this year was the fastest in the G7; since the election, interest rates have been cut five times, and real wages have risen faster than they did under the last government.
“There’s more to do to build an economy that works for, and rewards, working people. That’s why we are cutting unnecessary red tape, transforming the planning system to get Britain building, and investing billions of pounds into affordable homes, Sizewell C, and local transport across the country.”
In response, Sir Mel Stride MP, shadow chancellor of the Exchequer, said: “Any economic growth is welcome – but this government is distracted from the problems the country is facing.
“While the government lurches 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.
“It is little wonder that Starmer has stripped Reeves of control over the Budget. But sidelining her is not enough – he must also reject her failed economic approach that has left Britain poorer.”
Rachel Reeves is scheduled to deliver the Budget on 26 November.
Ben Jones, lead economist at the CBI, added: “The sunshine may have lifted consumers in July, but the broader economy stayed stuck in the shade. Growth was uneven across sectors, highlighting that underlying demand remains more fragile. Speculation about new business taxes is casting a long shadow. Amid rising cost pressures, firms are already holding back on hiring and investment and are wary of weeks’ more Budget uncertainty.
“The government cannot tax its way to growth and continue to raid corporate coffers. With the Autumn Budget fast approaching, the chancellor must deliver a decisive, pro-growth package by committing to serious tax reform. It’s the structure of our system – from punitive business rates to the restrictive VAT threshold and stamp duty – that holds back economic progress, not just the rates themselves.”
Additional reporting by PA