The UK economy recorded zero growth in July 2025, as a sharp 1.3% contraction in manufacturing output negated gains from a stronger services sector and retail performance, according to official data released by the Office for National Statistics. The stagnation marked a significant deceleration from the 0.4% monthly expansion recorded in June.
The manufacturing decline represents the steepest monthly contraction since July 2024, highlighting persistent structural challenges facing Britain’s industrial base. The sector’s poor performance became the primary drag on overall economic activity, overshadowing modest improvements elsewhere in the economy.
Services Sector Provides Limited Support
Despite the manufacturing downturn, the services sector managed modest growth of 0.1% in July, driven primarily by retail trade which surged 0.6% and construction which expanded 0.2%. However, these gains proved insufficient to offset the manufacturing sector’s deteriorating performance.
Liz McKeown, ONS director of economic statistics, said: “Falls in production were driven by broad-based weakness across manufacturing industries”. The widespread nature of the decline suggests structural challenges rather than isolated sectoral issues, according to economists.
Within services, transportation and storage provided the largest positive contribution with 1.4% growth, while human health and social work activities increased by 0.4%. These gains were partially offset by declines in information and communication services, which fell 0.7%.
Manufacturing Faces Multiple Headwinds
The manufacturing sector continues to grapple with an array of challenges that have intensified throughout 2025. Recent Purchasing Managers’ Index data shows the sector has contracted for eleven consecutive months, with the PMI falling to 47 in August from 48 in July. Any reading below 50 indicates contraction.
UK manufacturers are confronting what industry analysts describe as a “perfect storm” of rising operational costs, with 70% of manufacturers experiencing cost increases of up to 20% over the past year, according to Make UK data. An additional 8% reported increases as high as 50%, contributing to the steepest decline in industry confidence since the pandemic.
The sector faces particular pressure from increased employment costs following changes to National Insurance contributions, with 92% of manufacturers identifying employment costs as their primary financial risk for 2025. Energy and material price volatility continue to squeeze margins, while global trade uncertainties stemming from potential US tariff policies add further complexity.
Retail Provides Bright Spot
The retail sector offered one of the few positive developments in July’s economic data, with sales volumes rising 0.6% month-on-month, accelerating from 0.3% growth in June. The improvement was particularly evident in non-store retail and clothing sectors, with both recording 2.5% increases.
Retailers attributed the boost to new product launches, favourable weather conditions, and increased spending associated with the UEFA Women’s EURO 2025 football tournament. Online sales reached their highest level since February 2022, while clothing stores recorded their most significant annual growth since January 2023.
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.”
Over the three-month period to July, the UK economy expanded by just 0.2%, slowing from 0.3% in the three months to June. This modest performance underscores concerns about the fragile nature of Britain’s economic recovery as it heads into the second half of 2025.
The economic data comes as inflation pressures mount, with CPI rising to 3.8% in July – nearly double the Bank of England’s 2% target. This has prompted central bank officials to signal caution regarding further interest rate cuts, with the next Monetary Policy Committee meeting scheduled for 18 September unlikely to deliver a reduction.
Bank of England Governor Andrew Bailey told MPs that while the path for rates remains “downwards, gradually over time,” there is now “considerably more doubt about exactly when and how quickly we can make those further steps”.
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Political and Fiscal Implications
The disappointing growth figures intensify pressure on Chancellor Rachel Reeves ahead of her autumn Budget scheduled for 26 November.
Industry groups are calling for decisive pro-growth measures in the Budget, including serious tax reform addressing what they describe as “punitive business rates” and restrictive regulatory frameworks that constrain economic progress.
The government faces difficult choices in crafting policies that can restore growth momentum without exacerbating inflationary pressures.
Bank of England holds at 3.75% as pressure for rate cuts builds