The UK economy flatlined in July, according to official figures, in grim news for Rachel Reeves as she gears up for a challenging budget.

It was a slowdown compared with June, when the economy grew by 0.4%, according to the Office for National Statistics.

GDP expanded strongly in the first half of the year, making the UK the fastest-growing economy in the G7, but it had been widely expected to slow in the second half.

The ONS said that improvements in the services and construction sectors were offset by falls in production in July.

Zero growth in July will raise questions about Labour’s promise to kickstart the economy.

The ONS said that GDP grew by 0.2% in the three months to July, compared with the three months to April, down from 0.3% in the three months to June.

ONS director of economic statistics Liz McKeown said: “Growth in the economy as a whole continued to slow over the last three months. While services growth held up, production fell back further.

“Within services, health, computer programming and office support services all performed well, while the falls in production were driven by broad-based weakness across manufacturing industries.”

Business groups have blamed Reeves’s £25bn increase in employer national insurance contribution, which came into force in April alongside a significant rise in the “national living wage”, for putting the brakes on growth.

The chancellor is widely expected to have to present a package of tax increases when she delivers her second budget on 26 November, to compensate for an anticipated downgrade in the Office for Budget Responsibility’s forecasts.

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The slowdown in growth comes alongside higher-than-expected inflation, which jumped to 3.8% in July, prompting investors to rein in expectations of further interest rate cuts from the Bank of England in the coming months.

The Bank’s nine-member monetary policy committee is expected to leave rates on hold at 4% when it meets next Thursday.

Jobs and inflation data, due to be published earlier in the week, will give more detail of the state of the economy – though policymakers have repeatedly warned that known flaws in ONS data are making it difficult to get a clear picture.