UK gross domestic product (GDP) growth stalling could “cost the Treasury dearly” in another concerning development for Chancellor Rachel Reeves, economists warn.
Britain’s economy came to a standstill in July, recording no growth after June’s robust 0.4 per cent increase, according to official data released from the Office for National Statistics (ONS) today.
This economic stagnation matched economists’ predictions and highlights mounting concerns about the economy’s underlying weakness.
The flat performance follows a relatively strong first half of 2025, with 0.7 per cent growth in the first quarter and 0.3 per cent in the second. However, this momentum appears to have dissipated.
Last week, the Chancellor acknowledged that while Britain’s economy “isn’t broken, but it does feel stuck”.
These lacklustre figures arrive at a critical juncture, with businesses and policymakers anxiously awaiting Ms Reeves’s November budget.
Manufacturing sectors faced significant headwinds from American trade barriers, contributing to the economic slowdown.
The pharmaceutical industry experienced particularly sharp declines in output during the month.
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This downturn coincided with American pharmaceutical giant Merck’s decision to abandon a substantial UK investment project.
The withdrawal underscores growing concerns about Britain’s attractiveness to international investors.
Danni Hewson, AJ Bell’s head of financial analysis, noted that “Donald Trump’s tariffs and the uncertainty about the impact on global trade has impacted some manufacturers”.
She highlighted that pharmaceutical production showed “one of the biggest drops” amongst industrial sectors.
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Corporate decision-making remains paralysed as firms postpone expansion plans and recruitment whilst they await clarity on taxation measures.
Many organisations that had already deferred investments following last year’s budget continue to maintain a cautious stance.
Ms Hewson explained that “many businesses which had delayed investment and job creation as they worked through the impact of last year’s budget on labour costs, have kept their fingers on the pause button as they consider what taxes might go up in order to fill the hole in the public finances”.
The uncertainty extends beyond taxation to encompass forthcoming employment legislation changes, creating additional hesitation amongst business leaders about future commitments.
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Ms Hewson warned that the stagnation “throws into stark relief the fragility of that growth, the very thing this Government has hung its hat on”.
She added: “The biggest question is, how will these figures impact the sums being sweated over by the Government’s spending watchdog the Office for Budget Responsibility (OBR), because any downgrading of their long-term growth expectation will cost the Treasury dearly.”
Russ Mould, AJ Bell’s investment director, observed that while the FTSE 250 remained steady following the announcement, “ongoing uncertainty could lead more companies to take a cautious approach and that doesn’t bode well for UK domestic earnings and therefore share price growth”.
A Treasury spokesperson said: “There’s more to do to build an economy that works for, and rewards, working people.”
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