Britain’s economy recorded no growth in July, official figures released Friday show, a development that undermines the Labour government’s pledge to make the UK the fastest-growing economy in the G7 and deepens concern among business leaders and economists.
The flat reading follows repeated statements from Labour ministers placing growth at the top of the government’s agenda. Chancellor Rachel Reeves has said repeatedly that “growth is our number one mission,” but the latest statistic and other economic indicators have prompted renewed questions about the strength of the recovery and the government’s policy mix.
The zero-growth figure comes amid other indicators that have worried markets and business leaders. Commentators and some business figures cited in recent coverage point to a higher unemployment rate — described as a four-year high by some reports — and estimates that more than 200,000 jobs have been lost since Labour took office. Separately, inflation remains elevated compared with recent years and the UK is paying more than many peers to borrow on international bond markets, according to financial commentary.
Some voices have warned the combination of weak growth and persistent price pressure raises the prospect of stagflation. Former Bank of England governor Mervyn King has voiced alarm over the country’s public debt and borrowing costs, and Sir Stuart Rose, the former Marks & Spencer chief executive, told media outlets this week that he believed the UK was “genuinely at the edge of a crisis.”
This week several major corporate decisions have fed concerns about the UK’s investment climate. Sir Jim Ratcliffe’s Ineos said it would abandon planned investment in the UK, US drugmaker Merck cancelled a proposed £1 billion research centre in London, and French pharmaceuticals group Sanofi described the UK market as unappealing, according to media reports and company statements cited in coverage of the developments.
Ministers have said they will press ahead with a workers’ rights bill that critics warn could add regulatory costs for businesses. Some estimates reported in recent coverage put the potential cost to firms at about £5 billion a year; ministers have defended the reforms as improving protections for workers. The government has also delayed its annual Budget until Nov. 26, a move that has extended uncertainty over how the Chancellor plans to close fiscal gaps and manage public finances.
Opposition and business commentators have seized on those fiscal decisions. Reports say attempts within the governing party to reduce welfare spending have faltered amid internal opposition, and some commentators say higher taxation is likely to be central to any effort to shore up public finances. The Chancellor has said she remains committed to restoring growth and fiscal stability, but has not yet set out detailed measures to alter the current trajectory.
The latest economic numbers are likely to intensify debate in Westminster and on trading floors about the direction of policy. Labour came to office promising to boost long-term growth, but commentators and some business leaders are now pointing to a run of negative investment headlines, persistent inflation and a flat month of output as evidence that achieving that aim will be more difficult than the government has suggested.
Officials and independent forecasters will now be watching subsequent monthly and quarterly data for signs of recovery or further weakness. For the government, the task will be to outline policies that can reverse the recent slide in confidence while keeping borrowing and inflation under control; for markets and corporations, the priority remains clarity on the UK’s regulatory and fiscal outlook before committing to major new investments.