The U.K. economy flatlined in July, marking a sharp slowdown from the previous month’s expansion and increasing pressure on the Bank of England (BoE) to extend its cycle of monetary policy easing.

GDP Data Signals Stagnation

Figures released Friday by the Office for National Statistics showed that gross domestic product was unchanged in July, following a 0.4% expansion in June. The breakdown of activity showed services output rising 0.1% and construction up 0.2%, while production fell 0.9%, highlighting sectoral imbalances.

On an annual basis, the economy grew 1.4%, unchanged from June and broadly in line with market expectations.

Monetary Policy Outlook

The BoE cut its key interest rate to 4% last month, the lowest level in more than two years, following a string of five reductions since August last year. The move, down from 4.25%, was narrowly supported by policymakers amid persistent inflation concerns.

Inflation is now forecast to peak at 4% in September, double the central bank’s 2% target and slightly above its earlier forecast of 3.8%. Despite this, signs of economic stagnation are expected to strengthen the case for continued easing.

The BoE is set to hold its next policy meeting next week, with markets closely watching whether officials signal further reductions before year-end.

Fiscal Pressures Mount

On the fiscal front, Chancellor Rachel Reeves is preparing new policy announcements later this year. Analysts expect that the government may need to raise tens of billions of pounds in taxes, following resistance within the ruling Labour Party against welfare reforms. The rebellion has cast doubt on the government’s ability to rein in spending sufficiently, leaving fiscal consolidation uncertain.