Economy Flatlined In July After Sharp Contraction In Manufacturing

The UK economy stalled in July, recording zero growth as a steep contraction in manufacturing dragged down output, according to official figures that underscore the challenges facing the government’s growth agenda.

Data from the Office for National Statistics (ONS) showed gross domestic product was flat month-on-month, in line with expectations but a sharp slowdown from 0.4% growth in June. Manufacturing activity slumped by 1.3% – its biggest monthly drop in a year – driven by widespread weakness across sectors including electronics and pharmaceuticals.

The decline highlights the fragility of the economic recovery and adds pressure on Chancellor Rachel Reeves as she prepares her 26 November Budget. Analysts warn the government’s need to balance the books without further damaging growth will require careful prioritisation of resources, clear timelines and coordination between departments.

The services sector offered modest support, growing 0.1%, with hot weather boosting retail sales by 0.6%. Construction activity edged up by 0.2%. Sterling slipped against both the dollar and the euro following the release, reflecting investor concerns over stagnant growth.

Economists point to tariff uncertainty and higher business taxes as key headwinds. Kathleen Brooks of XTB said the downturn “suggests that a mixture of tariff concerns and a higher tax burden for business is now having a material effect on the economy.” National insurance increases and new US tariffs have intensified cost pressures, particularly for manufacturers.

Project management experts note that July’s stagnation demonstrates the importance of strategic planning in economic policy. Clear milestones for productivity growth, infrastructure investment and regulatory reform are increasingly critical as businesses face uncertainty.

Despite the disappointing data, some forecasters expect modest 0.2% growth in the third quarter. Rob Wood of Pantheon Macroeconomics said the economy remains “resilient to the barrage of shocks faced this year,” predicting the Bank of England will hold interest rates at 4% until at least the end of 2025.

The figures come ahead of the Bank’s September rate decision and will add weight to calls for a more cohesive long-term economic strategy, particularly in manufacturing supply chains, where volatility remains a major risk.