London, UK – The United Kingdom’s economy recorded a meager growth in the third quarter, according to preliminary figures released by the Office for National Statistics (ONS). The slowdown—which comes just before the highly anticipated Autumn Budget—has intensified the debate over the government’s strategy to stimulate economic activity while addressing fiscal challenges.
Subdued Economic Performance
The $0.1\%$ expansion in the July-September period fell short of the $0.2\%$ growth expected by economists polled by Reuters and marked a deceleration from the $0.3\%$ growth seen in the second quarter.
Further compounding the concern, monthly data showed the economy shrank by $0.1\%$ in September, following a period of no growth in August (revised down from a previous $0.1\%$ expansion).
“Growth slowed further in the third quarter of the year with both services and construction weaker than in the previous period. There was also a further contraction in production,” said Liz McKeown, director of Economic Statistics at the ONS.
The weakness in production was primarily driven by manufacturing. A significant factor highlighted by the ONS was the cyber attack on Jaguar Land Rover, which led to a five-week production halt. McKeown also noted a “particularly marked fall in car production in September” and a decline in the often-erratic pharmaceutical industry.
The Budget Dilemma: Tax Hikes vs. Stimulus
The latest data sets a challenging backdrop for the British government’s Autumn Budget on November 26. Finance Minister Rachel Reeves is widely expected to announce fresh tax hikes to tackle a persistent fiscal deficit, a move that some analysts fear could further dampen consumer spending and economic activity.
Reacting to the figures, Reeves stated: “At my Budget later this month, I will take the fair decisions to build a strong economy that helps us to continue to cut waiting lists, cut the national debt and cut the cost of living.”
Investment strategists are now focused on what “levers the Chancellor can pull to stimulate growth.” Scott Gardner, an investment strategist at JPMorgan Personal Investing, emphasized the role of the housing market.
“In our view, boosting housing market activity is key to unlocking decent, sustained growth,” Gardner noted. “That said, with tax rises all but confirmed, consumption and, in turn, services spending could face more headwinds from the second quarter of next year when tax and spend measures could come into place.”
Amanda Blanc, CEO of Aviva, captured the prevailing market sentiment, telling CNBC that the budget “can’t come soon enough,” as businesses and consumers are nervous about the lack of certainty.
Bank of England Rate Outlook
All eyes are also on the Bank of England’s (BOE) final Monetary Policy Committee (MPC) meeting of the year on December 18, with some speculation of a pre-Christmas interest rate cut.
Last week, the BOE held off trimming rates, with Governor Andrew Bailey indicating the MPC was awaiting further inflation and labor market data before making a move.
Despite the weak GDP reading, some economists, like Rob Wood, chief U.K. economist at Pantheon Macroeconomics, maintain the expectation of a rate cut. Wood suggested that a likely contractionary Budget on November 26 will dominate the MPC’s deliberations, overriding even a potentially upside GDP surprise.
However, Wood also pointed out that growth has been “proving resilient, running close to the U.K.’s potential of $0.3\%$ quarter-to-quarter despite strong headwinds,” which could limit the emergence of spare capacity and potentially make further rate cuts in 2026 trickier.
Published on 24/11/2025
By Nicholas.