UK economy stagnated in July - GBPUSD at a crucial point

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• UK GDP stagnated in July 2025 (0.0% m/m), confirming an economic slowdown - however, on an annual basis the economy was 1.4% larger than a year earlier.
• Services and construction supported growth, while manufacturing weighed on the economy – with sharp declines in metal products, transport equipment, and computers & electronics.
• GBPUSD is at a key technical level, with the future direction likely to depend on monetary policy divergence between the Fed and the Bank of England – US rate cuts could support the pound.

UK economy standstill

In July 2025, the UK economy came to a standstill, with monthly GDP growth recorded at 0.0%, following a 0.4% increase in June and a 0.1% decline in May. On a three-month basis (May–July compared with February–April), GDP expanded by 0.2%, marking a clear slowdown compared with previous periods, when growth reached 0.3% in June and as much as 0.6% in May. On a yearly basis, however, the picture remains positive: in July the British economy was 1.4% larger than a year earlier, while growth for the May–July period amounted to 1.2% compared with the same period in 2024.

Contributions to three-month GDP growth in UK, July 2024 to July 2025, source: Office for National Statistics

A sectoral breakdown shows that services remained the main driver of growth, expanding by 0.1% m/m and 0.4% on a three-month basis. The strongest contributions came from transportation and storage (+1.4%) and health and social care (+0.4%). These gains were partly offset by a decline in the information and communication sector (-0.7%). Construction activity increased by 0.2% m/m and 0.6% in the three-month period, supported mainly by infrastructure investment (+2.1%) and private housing repair and maintenance (+3.8%).

Manufacturing, by contrast, weighed heavily on overall growth, falling by 0.9% m/m and 1.3% over the three-month period. The steepest declines were recorded in metal products (-2.7%), transport equipment (-1.4%), and computers and electronics (-7.0%). These figures highlight the sector’s persistent weakness, reflecting both domestic demand constraints and challenges in international trade.

GBPUSD important ressistance - Fed decision next week

GBPUSD, Daily timeframe, source: TradingView

On the currency market, GBPUSD is at a technically significant point. At the end of July, the pair formed a head-and-shoulders pattern and broke below the neckline, a signal that typically suggests a trend reversal and potential downside toward 1.2880. Although this target has not yet been reached, the 1.3583 area – corresponding to the right shoulder of the pattern – has proven to be a very strong resistance.

Moreover, during the corrective decline, an inverse head-and-shoulders pattern emerged, with the neckline falling in exactly the same region. If the price breaks through the aforementioned resistance, there is potential for it to reach as high as 1.40 on GBPUSD. The overlap of these signals highlights the importance of this level for the future direction of the “cable.”

From a fundamental perspective, potential gains in GBPUSD may be supported by expectations of three interest rate cuts in the United States before the end of the year. Such a scenario would weaken the US dollar and increase the relative attractiveness of the pound, particularly if the Bank of England maintains a more cautious stance on monetary policy.

Probability of rate cuts based by FED funds futures, source: CME Fed Watch Tool

Services and construction support economy

Furthermore, if the UK economy manages to sustain positive annual growth despite monthly stagnation, investor confidence in the pound could strengthen further. In summary, the July data show a slowdown in UK economic momentum and an uneven recovery across sectors.

Services and construction remain pillars of growth, while manufacturing continues to drag on GDP. In the FX market, the key technical level on GBPUSD will determine the next major move, with monetary policy divergence between the US and the UK likely to play a decisive role.

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