- Broad-based production slump weighs on monthly reading - Economists flag weak momentum; Q3 still seen positive - ONS to focus on 3M/3M trend due to noise in monthly data - BoE forecast to hold rates until cuts next year
LONDON - The UK economy stalled in July, fuelling concerns that the country may be slipping into a phase of stagflation and raising questions over whether the Bank of England can afford to hold rates steady at next week’s monetary policy meeting.
Data from the Office for National Statistics showed GDP moving sideways July, mirroring expectations and slowing from the previous month’s 0.4% outturn. Advances were reported in services and construction output by 0.1% m/m and 0.2% m/m, respectively, but they were cancelled out by a 0.9% fall in production.
In the three months to July, the underlying growth rate grew 0.2%, reflecting slowing momentum in economic activity across the period.
Liz McKeown from the ONS stated that, “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.
Less noisy underlying data
The ONS said that moving forward, it would place more emphasis on the three-month-on-three-month figures, stating that a focus on such short-term movements risked “placing too much weight on a relatively noisy signal.”
Paul Dales, chief UK economist at Capital Economics, said the stagnation in real GDP in July (consensus and CE forecasts 0.0% m/m) showed that the economy is still struggling to gain decent momentum in the face of the drag from previous hikes in taxes and possible further tax rises to come in the Budget.
Looking further out, GDP growth is estimated to have expanded 1.2% in the three months to July, compared with the same three months a year ago. “Over this period, services grew by 1.3%, construction grew by 1.8%, and production showed no growth.”
ONS’s McKeown said: “Compared with the same month a year ago, GDP is estimated to be 1.4% higher in July 2025.”
Central bank on hold
Despite the slowdown in momentum, some experts continued to predict a positive outcome for Q3 as a whole. “Although weak, the numbers are volatile and most importantly didn’t reverse the large 0.4% increase in the prior month,” JP Morgan’s Allan Monks wrote. “That leaves the level of GDP running a couple of tenths above the Q3 average, pointing to a gain this quarter of around 1% annualised.”
The BoE’s Monetary Policy Committee is scheduled to meet next week Thursday and is widely expected to keep its benchmark Bank Rate unchanged.
“The soft performance of the economy in July probably isn’t enough to offset the Bank of England’s growing inflation fears,” posited Capital Economics’ Dales. “Our new forecast is that the bank keeps interest rates at 4.00% for the rest of the year, while inflation risks are particularly high before cutting them to 3.00% next year once inflation starts to turn down again.”
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- Broad-based production slump weighs on monthly reading
- Economists flag weak momentum; Q3 still seen positive
- ONS to focus on 3M/3M trend due to noise in monthly data
- BoE forecast to hold rates until cuts next year
By Harry Daniels
LiveSquawk News
@HarryDaniels71
12 September 2025 | 10:00 GMT
LONDON - The UK economy stalled in July, fuelling concerns that the country may be slipping into a phase of stagflation and raising questions over whether the Bank of England can afford to hold rates steady at next week’s monetary policy meeting.
Data from the Office for National Statistics showed GDP moving sideways July, mirroring expectations and slowing from the previous month’s 0.4% outturn. Advances were reported in services and construction output by 0.1% m/m and 0.2% m/m, respectively, but they were cancelled out by a 0.9% fall in production.
In the three months to July, the underlying growth rate grew 0.2%, reflecting slowing momentum in economic activity across the period.
Liz McKeown from the ONS stated that, “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 ONS said that moving forward, it would place more emphasis on the three-month-on-three-month figures, stating that a focus on such short-term movements risked “placing too much weight on a relatively noisy signal.”
Paul Dales, chief UK economist at Capital Economics, said the stagnation in real GDP in July (consensus and CE forecasts 0.0% m/m) showed that the economy is still struggling to gain decent momentum in the face of the drag from previous hikes in taxes and possible further tax rises to come in the Budget.
Looking further out, GDP growth is estimated to have expanded 1.2% in the three months to July, compared with the same three months a year ago. “Over this period, services grew by 1.3%, construction grew by 1.8%, and production showed no growth.”
ONS’s McKeown said: “Compared with the same month a year ago, GDP is estimated to be 1.4% higher in July 2025.”
Despite the slowdown in momentum, some experts continued to predict a positive outcome for Q3 as a whole. “Although weak, the numbers are volatile and most importantly didn’t reverse the large 0.4% increase in the prior month,” JP Morgan’s Allan Monks wrote. “That leaves the level of GDP running a couple of tenths above the Q3 average, pointing to a gain this quarter of around 1% annualised.”
The BoE’s Monetary Policy Committee is scheduled to meet next week Thursday and is widely expected to keep its benchmark Bank Rate unchanged.
“The soft performance of the economy in July probably isn’t enough to offset the Bank of England’s growing inflation fears,” posited Capital Economics’ Dales. “Our new forecast is that the bank keeps interest rates at 4.00% for the rest of the year, while inflation risks are particularly high before cutting them to 3.00% next year once inflation starts to turn down again.”