Britain entered the second half of 2025 on a flatter trajectory. The latest monthly figures show GDP was unchanged in July compared with June’s 0.4% advance, signaling that the pace set earlier in the year is proving hard to sustain. Beneath that steady headline is a more dynamic reshuffle: a pronounced contraction in manufacturing, a slight uptick in services, and stable but unspectacular construction activity. For executives and investors, the message is that external demand and supply-chain costs are once again in the driver’s seat.
Industry is where the pressure is clearest. Output from manufacturers dropped the most in a year, with computers and electronics leading the declines and pharmaceuticals also underperforming. Exposure to imported inputs and a choppy export tape amplified the hit. By contrast, services—the bulk of the UK economy—rose 0.1% on the month. Business services and some information-heavy segments helped offset a softer showing in leisure and hospitality, where pass-throughs from energy and wage costs continue to weigh on margins. Construction remained comparatively steady, thanks to ongoing infrastructure work and housing repairs rather than new private development.
On a rolling basis, growth slowed to 0.2% in the three months to July, down from 0.3% in the second quarter, while annual growth in July held at 1.4%. Those aggregates mask an important pivot: the first half benefited from export pull-forward and public-sector outlays, but the second half opens with weaker factory demand, tighter corporate budgets, and a consumer that is increasingly value-driven. Retailers report more trading-down behavior and a higher sensitivity to promotions, especially on discretionary items.
The external accounts add to the caution. The goods trade deficit widened to its largest since early 2022, reflecting stronger imports from Europe and slower goods exports. That widening gap forces choices across supply chains: either absorb higher input costs, pass them through to customers, or pare back volumes. None are particularly friendly to near-term output growth. Currency dynamics complicate matters further; even modest sterling swings can alter pricing for import-heavy categories in electronics, autos, and household goods.
What does this mean for the policy path? Markets currently ascribe only a limited chance to further interest-rate cuts this year, reflecting concern that premature easing could reignite price pressures just as inflation expectations are stabilizing. At the same time, officials are wary of overtightening into softer real-economy data. With an autumn budget ahead, fiscal signals on investment incentives, planning reform, and labor-market policy may prove as important for confidence as the next rate decision.
For operators on the ground, the guidance is practical: keep inventory lean in export-exposed lines, prioritize working-capital flexibility, and focus capex on productivity-enhancing projects with clear paybacks. For portfolio managers, the style bias is tilting toward firms with pricing power in services, resilient free-cash-flow profiles, and lower sensitivity to global goods cycles.
Bottom line: July’s zero growth is less a shock than a marker of transition. The UK is shifting from a first-half tailwind toward a more demanding growth mix defined by factory softness and a wider trade gap. Whether that becomes a trend will turn on the next few months of manufacturing orders, import costs, and policy clarity.
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