UK Economy Flatlines in July, Raising Pressure on Rachel Reeves Ahead of Autumn Budget

Published: 12 September 2025 | English Chronicle Desk

The UK economy stalled in July, according to official data, presenting a challenging backdrop for Chancellor Rachel Reeves as she prepares to unveil her second budget later this year. The Office for National Statistics (ONS) reported zero growth for the month, marking a slowdown from June’s 0.4% expansion and signaling a cooling phase in what had been a strong first half of 2025.

Despite the UK emerging as the fastest-growing economy in the G7 during the first half of the year, expectations for a slowdown in the second half had been widespread. The ONS highlighted that modest growth in the services and construction sectors was offset by a 0.9% decline in the production sector, which encompasses manufacturing.

ONS director of economic statistics Liz McKeown explained, “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.”

The three-month GDP figures, considered a more reliable indicator of underlying economic health than volatile monthly data, showed 0.2% growth in the three months to July, down from 0.3% in the three months to June.

Business groups expressed concern that recent policy changes, including Reeves’s £25 billion increase in employer national insurance contributions and the rise in the national living wage, were constraining growth. Stuart Morrison, research manager at the British Chambers of Commerce (BCC), warned against further taxation on businesses: “The business landscape remains challenging, particularly for SMEs, with cost pressures impacting investment, recruitment, and trade. Our message is now clear—there must be no more taxes on business in the autumn budget.”

The Treasury defended its position, noting the need to address long-term underinvestment. A spokesperson said, “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.”

Economists cautioned that fiscal uncertainty could continue to weigh on growth. Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research, said, “Economic activity in the third quarter will be constrained by fiscal uncertainty weighing on household and business sentiment. Growth at this pace will do little to ease the fiscal challenges confronting the chancellor this autumn.”

Political reactions underscored the pressure on the government. Daisy Cooper, Treasury spokesperson for the Liberal Democrats, criticized policy choices, saying, “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 shortsighted red lines on cutting red tape with Europe is holding back our exporters.”

Trade figures published alongside the GDP update revealed the UK’s goods deficit widened by £3 billion in the three months to July, reaching £61.9 billion. While exports to the United States rose by £800 million during July, they remain below pre-tariff levels imposed during the Trump administration.

The slowdown occurs amid persistent inflation, which rose to 3.8% in July, prompting investors to temper expectations for further interest rate cuts from the Bank of England. The Bank’s nine-member monetary policy committee is expected to maintain rates at 4% in its upcoming meeting next Thursday. Jobs and inflation data due earlier in the week are anticipated to provide further insight into the economy, though policymakers have cautioned that flaws in ONS data complicate real-time assessments.

As the autumn budget approaches, the government faces the dual challenge of stimulating growth while managing inflation and fiscal sustainability, all under heightened scrutiny from businesses and opposition parties alike.