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Investing.com -- The UK economy is showing signs of stagnation at the start of Q3 2025, according to July’s flash Purchasing Managers’ Index (PMI) data released Thursday.
The composite PMI declined to 51.0 in July from 52.0 in June, falling below the consensus forecast of 51.7.
This suggests the economy continues to struggle following April’s implementation of higher US tariffs, UK stamp duty charges, National Insurance Contributions for employers, and minimum wage increases.
The services sector drove the overall decline, with its PMI dropping to 51.2 from 52.8 in June. Meanwhile, manufacturing output showed improvement, rising to 50.0 from 47.0, reaching the threshold that separates growth from contraction.
Employment conditions continued to deteriorate as the composite employment balance fell further to 45.1 in July from 46.6 in June, indicating ongoing declines in payroll employment.
This suggests employment is falling at a pace of about 0.2% on a three-month basis, a slight improvement from the 0.3% decline recorded in June.
On the inflation front, the services output prices balance rebounded modestly to 54.7 in July from 52.9 in June, reversing only part of last month’s sharp decline.
This trend is consistent with services CPI inflation potentially slowing from 4.7% in June to below 4.0% in six months’ time.
The data comes despite last week’s stronger-than-expected inflation and labor market figures, providing evidence that upside inflation risks continue to fade.
These developments may reassure the Bank of England that it can proceed with interest rate cuts, potentially reducing rates from the current 4.25% to 4.00% in August, with further quarterly cuts of 25 basis points expected to follow.
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