The U.K. economy did not grow at all in July, flatlining over the month and deepening worries among economists that a pronounced slowdown may have begun. The Bank of England faces unprecedented hurdles in this new economic era. Expectations have been building for a more pronounced deceleration in the second half of ’25.
Production output contracted by 0.9% in the July – the U.K.’s second consecutive month of shrinking manufacturing output. This dramatic drop has caught the eye of analysts and at least some policymakers. Although there were minor gains in service and construction industries, the broader picture in economic performance is concerning. These increases were recently documented by the U.K.’s Office for National Statistics. They noted that even with these positive advancements, the economy is having a hard time sustaining its momentum.
The Bank of England’s monetary policy committee has just voted to cut the key interest rate. In an unexpected move, they have cut the “Bank Rate” by 25 basis points to 4%. Without question, this decision reflects a newfound caution over aggressive monetary easing. It advocates for a patient and prudent approach to restoring economic stability amid years of boom-bust growth. The committee’s next meeting is scheduled for November 6, just before the government’s budget announcement, adding an element of urgency to their discussions.
And the change is substantial, with the economy growing by just 0.3% in the second quarter, a vastly different picture. Even that growth was not enough to match the 0.7% growth seen in Q1. Some economists had actually projected more positive growth in the second quarter, making the subsequent flatlining all the more alarming. The Bank of England’s challenge lies not only in addressing immediate economic conditions but in managing inflation resilience that complicates further rate cuts.
Some economists, including Carsten Brzeski, suggest that a rate cut may still occur in November, contingent on the evolving economic indicators. Inflation is still the real political issue that makes life difficult for independent central banks, such as the UK’s Bank of England. As they approach upcoming meetings and budget considerations, the implications of July’s economic performance will likely weigh heavily on their strategies.