UK Economy Stalls in July, Setting Stage for Autumn Budget Challenges

Gerik

Summary:

The UK economy stagnated in July after a modest 0.4% expansion in June, reflecting weakness in production output despite slight growth in services and construction...

Economic Performance Flatlines

Data from the Office for National Statistics show the UK economy neither grew nor contracted in July, marking a slowdown from June’s 0.4% expansion. The stagnation was driven primarily by a 0.9% contraction in production output, while services and construction sectors experienced marginal growth.

The second quarter of 2025 had delivered a 0.3% rise in GDP, slower than the first quarter’s 0.7% expansion but stronger than many forecasts. Economists now anticipate that this growth momentum will weaken in the latter half of 2025, influenced by adjustments in trade, stockpiling patterns, public sector spending, and net acquisitions of precious metals.

Implications for Fiscal Policy

Chancellor Rachel Reeves, who has emphasized funding government spending through tax receipts rather than borrowing, faces a heightened challenge. The stagnation in July underscores ongoing difficulties in generating economic momentum, particularly in light of prior tax hikes and the prospect of further increases in the upcoming Autumn Budget.

Paul Dales of Capital Economics highlights that any potential tax adjustments will be closely scrutinized, as they could further influence economic activity. The government’s aim to reduce national debt depends on maintaining a balance between fiscal responsibility and economic support.

Monetary Policy Considerations

The Bank of England, confronted with persistent inflation 3.8% in July, above expectations must weigh fiscal uncertainty against the need for monetary support. The central bank held rates steady in its upcoming September 18 meeting after a narrow 5–4 decision to cut the Bank Rate to 4% in August, adopting a “gradual and careful” approach to easing.

Analysts, including Carsten Brzeski of ING, continue to anticipate a potential rate cut in November, though recent hawkish tendencies have tempered confidence in immediate action. Inflation resilience and large fiscal deficits complicate the central bank’s ability to provide aggressive support.

The combination of economic stagnation, fiscal pressures, and inflation concerns presents a delicate environment for policymakers. With the Autumn Budget and the Bank of England’s upcoming meetings, the UK faces a balancing act: supporting growth while maintaining fiscal discipline and controlling inflation, amid signs of a broader slowdown in economic activity.

Source: CNBC

To stay updated on all economic events of today, please check out our Economic calendar

News, historical chart data, and fundamental company data are provided by FastBull Ltd.

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.