The Office for National Statistics (ONS) said there was zero growth in gross domestic product (GDP) month on month in July, against 0.4% growth in June.
While most economists had expected zero expansion in July, it adds to mounting pressure on the Government, which has set itself a key priority to boost economic growth.
Attention is now focused on the upcoming November 26 Budget, with speculation mounting that Chancellor Rachel Reeves may have to raise taxes to fill a black hole in the nation’s finances.
The flat GDP figure for July came after the manufacturing sector saw activity pull back by 1.3% – the biggest contraction since July 2024.
This held back growth in the wider economy, with the services sector up 0.1% thanks to expansion of 0.6% for retail as hot weather boosted the high street, and construction growing 0.2%.
Liz McKeown, ONS director of economic statistics, said: “Falls in production were driven by broad-based weakness across manufacturing industries.”
The biggest contraction was seen in the manufacture of computers and electronics sector, but this came after a surge of 8.8% in June.
Manufacturing of pharmaceutical products and pharmaceutical preparations also fell heavily in July, down by 4.5%, following a fall of 1.1% in June.
A Treasury spokesman echoed comments by Ms Reeves on Thursday that “whilst our economy isn’t broken, it does feel stuck”.
“There’s more to do to build an economy that works for, and rewards, working people,” the spokesman added.
The latest data also comes ahead of the Bank of England’s next interest rate decision on September 18, with policymakers weighing up flagging growth with stubborn inflation.
Martin Beck, chief economist at WPI Strategy, said: “July’s stagnation underlines the hurdles the economy faces.
“Inflation remains uncomfortably sticky, interest rates are still in restrictive territory and talk of fiscal ‘black holes’ and likely tax rises in November’s Budget risks weighing on confidence.”
Despite the subdued start to the third quarter, Rob Wood at Pantheon Macroeconomics said he believed the economy is heading for growth overall of 0.2% between July and September.
This would mark a further slowdown after the economy grew by 0.3% in the second quarter and by 0.7% in the first three months.
He is forecasting the Bank to hold rates at 4% until at least the end of 2025.
He said: “Big picture, the economy is looking pretty resilient to the barrage of shocks faced this year.
“For the Monetary Policy Committee, growth close to potential will limit the emergence of spare capacity and keep Bank Rate on hold until year-end at least.”
