Today’s economic data for the UK opens by rather emphasising yesterday’s subject and why Prime Minister Kier Starmer is not only putting more emphasis on economic growth he is rather sidelining his Chancellor Rachel Reeves.
Monthly GDP is estimated to have shown no growth in July 2025, following growth of 0.4% in June 2025 and a fall of 0.1% in May 2025. ( Offic e for National Statistics)
As I frequently remind you there are all sorts of issues with monthly GDP and the erratic pattern of those three months is a clear one. But the link to the new government emphasis and priority is a 0% headline for July meaning the third quarter of the year has not matched the hope provided by the Retail Sales numbers I looked on the 5th of this month so we knew there was 0.6% growth in 5.8% of UK GDP.
The point is also reinforced by the ersatz quarterly number.
Real GDP is estimated to have grown by 0.2% in the three months to July 2025, compared with the three months to April 2025. This rate of growth has slowed since the peak of 0.8% growth in the three months to April 2025.
There are several issues here as 0.2% is not much as it would provide an annual growth rate of up to 1%. Next is the way it has slowed from the level seen in April. I had hoped that we would begin to see a pick-up as April dropped out of the numbers as it was originally -0.3% but it was revised up to -0.1% in the last release. So whilst in literal terms we have a decline on the 0.3% previously reported in reality we have likely had four months suggesting quarterly growth of 0.2% to 0.3%.
Indeed we see that whilst the numbers below show some welcome growth it is far from stellar and as I have explained above has shown signs of slowing further in the latest monthly releases.
Looking over the longer term, GDP is estimated to have grown by 1.2% in the three months to July 2025, 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.
Compared with the same month a year ago, GDP is estimated to be 1.4% higher in July 2025.
Indeed I note that the Resolution Foundation has provided some perspective on the quarterly numbers.
This is pretty weak in historical terms – below the post financial crisis average (0.4%) and way below the pre-crisis average (0.7%).
That will not be a welcome message for their former boss Torsten Bell who is co-chair of the Budget Board.
Inflation fears rise
There was some grim news for the government from the inflation expectations survey conducted by the Bank of England as all of them rose with the particularly significant ones below.
Question 2a: Median expectations of the rate of inflation over the coming year were 3.6%, up from 3.2% in May 2025.
Question 2b: Asked about expected inflation in the twelve months after that, respondents gave a median answer of 3.4%, up from 3.2% in May 2025.
Question 2c: Asked about expectations of inflation in the longer term, say in five years’ time, respondents gave a median answer of 3.8%, up from 3.6% in May 2025.
So as you can see there is plenty of work for the “Budget Board” to do as we see a combination of higher expected inflation and slowing economic growth. In other words it all looks rather stagflationary. Even more so when we remind ourselves that the Budget of last October that contributed to this with its rise in employer’s National Insurance contributions which weakened the jobs market and raised inflation via employment costs.
Also there is rather a warning here for the Bank of England as it has just cut its official interest-rate into a rise in inflation expectations. The very thing it claims it targets. Also it contradicts the claims made in the Minutes of that meeting.
The timing and pace of future reductions in the restrictiveness of policy will depend on the extent to which underlying disinflationary pressures continue to ease.
The survey suggests the opposite with longer estimates of inflation higher than next year’s.. Also they clearly do not expect inflation to be temporary either.
Looking beyond the temporary factors putting upward pressure on prices this year, wage and services price disinflation would be key drivers of CPI inflation settling sustainably at the target.
July
There is quite a problem for the Budget Board in one sector of the numbers particularly. So let me highlight that.
On the month, production output is estimated to have fallen by 0.9% in July 2025, following growth of 0.7% in June 2025. The decrease in output was mainly caused by manufacturing output, which fell by 1.3%, while mining and quarrying fell by 2.0%.
Here we see my UK deindustrialisation theme as our high electricity costs make us uncompetitive. That is reinforced by its contribution to the turn in trend.
The large three-monthly decline in “manufacturing” during the three months to July 2025 was because of widespread decline, with 9 of the 13 subsectors falling; this is the first three-monthly decline for the manufacturing sector since January 2025.
The problem here is that the Budget Board co-chairs Minouche Shafik and Torsten Bell were leaders in the Resolution Foundation producing this.
The UK has big advantages here, with recent rapid progress on electricity generation, geographic advantages in wind and tidal power, innovation strengths in some key areas, a cross party consensus on the Net Zero objective, and a strong institutional framework including the independent Climate Change Committee.
Apparently it was all about to get cheaper.
Until recently, the cost of the Net Zero transition and its impact on jobs were seen as the main barriers to a successful, just, transition. But new evidence points to savings outweighing the costs sooner than might be expected in some areas: by 2025 it will be cheaper to purchase and run an electric rather than petrol or diesel car over the vehicle’s lifetime.
You may note the huckleberry even then of using a lifetime value based on “estimates” presumably of the promised cheaper electricity. Anyway as we are now in 2025 we have seen more and more large extra costs be revealed such as modifications to the National Grid. Here is something from only yesterday showing exactly my deindustrialisation point. The emphasis is mine.
LONDON, Sept 11 (Reuters) – Britain’s largest electricity supplier Octopus Energy has signed a deal with Chinese wind turbine manufacturer Ming Yang Smart Energy (601615.SS), opens new tab, which could see the first Chinese made turbines installed in Britain.Britain is seeking to scale up renewable power to help meet its climate targets but is also grappling with rising project costs and high electricity prices.
So green jobs for China.
Services
As ever they are leading the way or if you prefer the rebalancing of former Bank of England Governor Baron King of Lothbury was out by 180 degrees.
Services output is estimated to have grown by 0.1% in July 2025, this is the third consecutive monthly growth following increases of 0.3% in June 2025, and 0.1% in May 2025, with 7 of the 14 subsectors growing in July 2025.
Construction
This is supposed to be on a tear because of government policy and here are the numbers.
Monthly construction output is estimated to have grown by 0.2% in July 2025. This follows a rise of 0.3% in June 2025…..and private new housing, which grew by 2.4% and 1.2%, respectively.
Comment
As you can see this is a really bad day for the Budget Board especially if we factor in the co-chairs enthusiasm for tax rises in that Resolution Foundation report. In a tactical sense they would help with the public finances but in a strategic one they would only enhance the stagflationary theme.
Let me conclude by agreeing 100% with this from FT Alphaville.
Below is an example why.
Initially, February 2022 was reported as a 0.1 per cent growth month, with the ONS wavering only slightly this point until autumn 2023 (19 months later), when it quite suddenly decided (probably in line with an ONS Blue book publication that made broader, long-term adjustments) that the economy had actually grown about 0.6 per cent that month.
Or if you prefer the revisions are just too large.
More importantly, let’s look at the core. Since the start of 2022, UK GDP growth has averaged 0.1 per cent per month. Within two years, any given reading will have typically moved by more than 0.2 percentage points in absolute terms — looked at from this perspective, the revisions are bigger than the moves themselves:
