"The Bank of England may feel its hands are tied"
The UK economy showed no growth in July, presenting a fresh challenge for Chancellor Rachel Reeves and the Labour government as they seek to deliver on their economic promises.
The latest data from the Office for National Statistics (ONS) follows a period of modest expansion earlier in the year, with gross domestic product (GDP) rising by 0.2% in the three months to July compared with the previous three-month period.
The services sector, the largest contributor to the UK economy, increased by 0.4% over the three months to July. Construction output also rose, up by 0.6% in the same period. However, production output fell by 1.3%, offsetting gains in other areas.
July's monthly GDP figure follows a 0.4% rise in June and a 0.1% decline in May.
“Growth in the economy as a whole continued to slow over the last three months,” said Liz McKeown, ONS director of economic statistics. “In the latest month, GDP showed no growth, with increases in services and construction offset by falls in production.”
Real GDP grew by 0.2% in the three months to July 2025 down from growth of 0.3% in the three months to June 2025.
— Office for National Statistics (ONS) (@ONS) September 12, 2025
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The Labour government has reiterated its commitment to driving economic growth, appointing new economic advisers and establishing a board to strengthen ties with the private sector. Despite these efforts, the ONS data indicates that overall expansion remains subdued.
Reeves is expected to address business rates and consider changes to the tax system in the upcoming Autumn Budget, scheduled for Nov. 26. The Treasury is reportedly preparing for a possible downgrade in the Office for Budget Responsibility’s forecasts, which may necessitate tax increases to maintain fiscal stability.
The economic slowdown is accompanied by higher-than-anticipated inflation, which reached 3.8% in July. This has led investors to scale back expectations for further interest rate reductions from the Bank of England. The bank’s monetary policy committee is widely predicted to keep rates unchanged at 4% at its next meeting.
“Stagflation remains the key challenge for policy makers,” said Jonathan Moyes, head of investment research at Wealth Club. “With anaemic growth and inflation running at 3.8%, the Bank of England may feel its hands are tied. Overdo it on rate cuts to help revive an ailing economy and you could risk runaway inflation.
“The key lever to revive our fortunes and get the economy moving again must then therefore be a fiscal one. The continued weakness in the UK economy will put pressure on the government to revise its approach to growth.
“The chorus of voices shouting you cannot tax your way to growth will grow ever louder as the evidence piles up. The chancellor appears to be running out of road.”
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