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The UK economy stagnated in July, adding pressure to chancellor Rachel Reeves ahead of the autumn budget.

Figures published by the Office for National Statistics (ONS) on Friday showed that the flat performance, which was in line with City expectations, followed a 0.4% expansion in June. Zero growth in July will raise questions about Labour’s promise to kickstart the economy.

The sluggish economic growth adds to concerns that the Office for Budget Responsibility (OBR) will revise down its forecasts for the British economy, leading to even tougher fiscal conditions for the chancellor.

Reeves is preparing to deliver the autumn budget on 26 November. Economists predict the chancellor will be forced to increase taxes in the budget, with some estimating the government will have to raise more than £20bn to fill a fiscal hole.

ONS director of economic statistics Liz McKeown said: “Growth in the economy as a whole continued to slow over the last three months. While services growth held up, production fell back further.

“Within services, health, computer programming and office support services all performed well, while the falls in production were driven by broad based weakness across manufacturing industries.

“In the latest month GDP showed no growth, with increases in services and construction offset by falls in production.”

The UK economy grew by 0.2% in the three months to July 2025 compared with the three months to April 2025.

It 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 and construction growing 0.2%.

Yael Selfin, chief economist at KPMG UK, said: “A reversal in fortune appears unlikely for the sector with global headwinds set to persist.”

Economists now expect a slowdown to take hold of the UK in the latter half of 2025.

An HM Treasury spokesperson said: "We know there's more to do to boost growth, because, whilst our economy isn't broken, it does feel stuck.

“That’s the result of years of underinvestment, which we’re determined to reverse through our Plan for Change. We’re making progress: growth this year was the fastest in the G7; since the election, interest rates have been cut five times, and real wages have risen faster than they did under the last government.

"There's more to do to build an economy that works for, and rewards, working people. That's why we are cutting unnecessary red tape, transforming the planning system to get Britain building, and investing billions of pounds into affordable homes, Sizewell C, and local transport across the country.”

The GDP figures come as the Bank of England is expected to hold interest rates at 4% at its meeting next week, following five cuts since the summer of 2024.

Lindsay James, investment strategist at Quilter, said Reeves’s tax rises in last year’s budget were hitting the economy: "Growth is slowing in these sectors and is likely the result of actions taken by the Labour government now being realised, with the increase in employer national insurance contributions having a significant impact on business confidence.

"With the summer now over and the economy supposedly getting out of its slumber, we now face continuing uncertainty in the lead up to the budget in November given the precarious position the chancellor finds the public finances in.

"It is estimated that the fiscal hole that needs to be plugged is anywhere between £20bn and £50bn. While that is a wide range, it means one thing for a government that has shown it will struggle to cut spending – more tax rises.

“Speculation is already rife about which taxes will be raised, and without the ability to raise the main revenue generators – income tax, national insurance and VAT – the government is left with targeting multiple sectors for small amounts of revenue.

"This is increasing the headwinds for the UK economy and with still over two months to go, GDP readings for the second half of the year are unlikely to pretty reading. For government under as much pressure as it is at the moment, this will be a very difficult corner to get itself out of.”

Goldman Sachs has predicted that the government’s headroom against its deficit rule will decline by around £20bn, requiring either tax increases or spending cuts for the government to stick within its fiscal rules.

Goldman economist James Moberly said it is “very likely” that Reeves will extend the existing tax threshold freezes for a further two years, up until 2030.

That would raise around £10bn, according to the IFS, as more workers would be dragged into higher income tax rates as their wages rise.

Moberly explained: "The government also has scope to raise significant additional sums from changes in pensions and property taxation, while the chancellor could raise smaller sums from changes in gambling taxes or measures aimed at reducing tax avoidance."