Britain’s economic recovery appeared to run out of steam in July, with official figures showing zero monthly growth as a sharp pullback in factory output offset modest gains in the services sector.
According to the Office for National Statistics, manufacturing output—a sector that accounts for roughly 9% of the UK’s economy—fell by an outsized 1.3% on the month, with output slumping across several key areas, notably computers, electronics, and pharmaceuticals. This drag was enough to counteract a 0.1% uptick in the dominant services industry, which came in slightly better than market forecasts.
June’s GDP expansion had reached 0.4%, but the July figures mark a clear slowdown as the economy begins the second half of 2025 on a fragile note. July’s figures likely herald the beginning of a more subdued period for the UK, as elevated inflation and emerging job losses are set to constrain activity, notwithstanding some expected benefit from the warm weather, said Suren Thiru, economics director at the ICAEW.
The lackluster data put some pressure on sterling, though Thiru suggested it’s unlikely to sway the Bank of England ahead of its policy meeting next week, with inflation poised to rise further above the central bank’s 2% target.
Despite posting stronger-than-usual growth earlier in the year—helped by increased government spending and a rush by exporters to beat anticipated U.S. tariffs—the pace has moderated. GDP came in 1.4% higher in July than a year earlier, flat versus June’s annual rate but underperforming economists’ 1.5% forecast.
Many analysts expect further weakness in the coming months, as new tariffs weigh on trade flows and Britain’s labor market softens. BoE currently projects just 1.25% annual growth for this year, a marked decline compared to the 2% average between 2010 and 2019.
Finance Minister Rachel Reeves acknowledged concerns, remarking that the UK’s economy does feel sluggish. She is betting pro-growth initiatives planned in advance of her November 26 annual budget consideration will help shift sentiment, and prompt a more positive outlook from the Office for Budget Responsibility.
Businesses, meanwhile, are in wait-and-see mode, holding back hiring and new investments as they await clarity on potential labor regulation changes and the possibility of bearing the brunt of future tax increases.
