UK GDP was flat month-on-month in July, following a 0.4% rise in June, largely dampened by a 0.9% monthly fall in production output.
GDP matched market expectations but came in slightly lower than the Bank of England's Monetary Policy Committee predicted in its August Monetary Policy Report.
On a quarterly basis, the ONS figures show that GDP growth slowed to 0.2% in the three months to July.
Alongside ongoing Budget speculation and geopolitical uncertainty, rising inflation is dampening the chances of another Bank Rate cut this year, with some industry experts still hopeful we could see one more reduction but others predicting interest rates will remain at 4% into 2026.
Lindsay James, investment strategist at Quilter, commented: “After a positive first half of the year, UK economic growth is slowly grinding to a halt once again, with GDP failing to grow month-on-month in July, and slowing to just 0.2% on a three-monthly basis. This increase was driven primarily by the services and construction sectors, but production output fell by 1.3%. 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.
“Speculation is already rife about which taxes will be raised, and without the ability to raise the main revenue generators – income tax, national insurance and VAT – the government is left with targeting multiple sectors for small amounts of revenue. This is increasing the headwinds for the UK economy and with still over two months to go, GDP readings for the second half of the year are unlikely to pretty reading. For government under as much pressure as it is at the moment, this will be a very difficult corner to get itself out of.”
Luke Bartholomew, deputy chief economist at Aberdeen, said: “UK GDP flatlined in July, as expected, in part due to payback from very strong growth in June. The monthly GDP data are very volatile month to month and it can be hard to extract signal from the noise. But with the labour market still deteriorating we expect H2 GDP overall to slow from the pace of H1. The key questions for the Bank of England though are more about inflation than growth right now, so this report is unlikely to change much in the way of the Bank’s thinking. We still expect one more interest rate cut later this year, but this is looking a finely balanced call.”
Kevin Brown, savings expert at Scottish Friendly, added: "While there’s no shortage of people ready to talk down the UK economy – and it certainly has its challenges – it continues to show a degree of resilience.
"Growth in July was flat, which is clearly disappointing after the stronger-than-expected performance we saw in Q2, but it doesn’t fundamentally alter the fact that the economy has been holding up relatively well in the face of heightened geopolitical uncertainty, a softening labour market and stubborn inflation.
"Both businesses and households are clearly still grappling with tighter monetary policy, rising prices and higher taxes, but the economy is displaying signs of stability rather than deterioration.
"What’s encouraging is that forward-looking indicators suggest some improvement ahead. PMI data for August reported the strongest month of activity in a year, thanks to a rebound in the UK’s dominant services sector. That points to renewed momentum as we head into the autumn.
"In terms of interest rates, flat growth does little to change the outlook. The Monetary Policy Committee remains squarely focused on quashing inflation, meaning a further reduction in borrowing costs looks unlikely unless the economy starts to deteriorate sharply."
