The UK economy continues to lose momentum amid sinking business confidence and skyrocketing cost pressures as the Budget stymies activity across the economy.

UK economic growth slows again

Official figures revealed that UK GDP grew by 0.1% in the third quarter of 2025 (see Chart 1), the weakest quarterly outturn since Q4 2023 and down from growth of 0.3% in the previous quarter.

Services were the main contributor to economic activity with growth of 0.2% in the quarter, as business rental and leasing, live events and retail performed well. This growth in services was largely offset by a 0.5% decline in industrial production.

Monthly GDP fell by 0.1% in September, as production output fell by 2.0%, mainly because of a 28.6% decline in the manufacture of motor vehicles, as the cyber-attack on Jaguar Land Rover stopped production to a halt for the whole month.

UK exports to US at three-year low

The UK’s trade deficit in goods and services widened by £2.8bn to £5.6bn in Q3 2025, compared with the previous quarter. The trade in goods deficit widened by £3bn to £59.6bn in Q3 2025, which was only slightly offset by the £0.2bn widening in the trade in services surplus.

Exports of goods to the US, including precious metals, fell by 11.4% in September 2025. The value of goods exports to the US in September 2025 were at their lowest level since January 2022 (see Chart 2), as US tariff policy dampens demand for UK goods.  

UK inflation starts to ease

The UK CPI inflation slowed from 3.8% to 3.6% in October 2025, the first decline for four months. Though the headline rate is now at its lowest level since May 2025, it is still almost double the Bank of England’s 2% target.

The largest downward pressure on inflation came from a smaller rise in October energy bills of 2%, compared to a year ago when bills rose by 9.6%.

The biggest upward pressure on inflation came from food and non-alcoholic drinks, which rose to 4.9% in October, from 4.5% in September.

October’s decline is the start of a winter slowdown in inflation with lower food and fuel costs likely to pull the headline rate below 3% next year, despite pricing pressures from elevated employment costs, including the rise in the minimum wage.

UK unemployment rate reaches four-year high

In the three months to September 2025, the UK unemployment rate rose from 4.7% to 5%, the highest rate since the three months to February 2021.

The unemployment rate for young people aged 16 to 24 rose from 14.5% to 15.3%, a five-year high. The number of employees on payrolls fell by 32,000 in October, compared with the previous month and 180,000 lower over the past year.

The largest fall in payrolled employees over the past year was in the wholesale and retail sector (a fall of 71,000 employees). Meanwhile, the largest increase was seen in the public administration and defence sector (a rise of 16,000 employees) (see Chart 3).

The jobs market could bear the brunt of measures announced at the Budget. Extending the freeze in income tax thresholds will squeeze spending and weaken customer demand, meanwhile rising costs on business, notably from the higher minimum wage, may mean further unemployment rises in the near term.

Productivity falls, despite growing economy

The flipside of a cooling labour market is that UK productivity, measured as output per hour worked, rose by 0.7% in Q3 2025, following a 0.7% decrease in the previous quarter. UK productivity on this measure was 3.1% higher compared with its pre-COVID pandemic level in 2019.

Compared with the 2019 average to Q2 2025 (latest available), the information and communication industry made the biggest positive contribution (2.5%) to productivity growth. Financial and insurance activities made the biggest negative contribution (-1.2%) to productivity growth over the same period.

OBR’s downbeat view of UK’s economic outlook

Alongside the Budget, the Office for Budget Responsibility (OBR) published it latest economic outlook which revealed a more downbeat assessment of the UK’s growth prospects than previously.

The OBR upgraded its growth forecast in this year to 1.5%, higher than its previous estimate of 1%, however, it lowered its growth estimates for the remainder of the forecast period. It cut its growth estimates from 1.9% to 1.4% in 2026 and from 1.8% to 1.5% in 2027. The OBR said lower productivity growth was the main driver behind the weaker growth forecast.

Implications for accountants, business owners and the economy

Taken together, these figures confirm that the UK economy has precious little momentum amid elevated cost pressures and heightened uncertainty.

With little in the Budget to address the supply side constraints limiting our economic potential, the UK remains exposed to future shocks further tax rises, despite the greater fiscal headroom.

Though the deflationary impact of lower energy bills and the mishmash of high taxes announced in the Budget mean a December rate cut looks nailed on, the upward pressure from the higher minimum wage means that future policy decisions maybe more problematic.

UK economy – what to watch for next month

• The monthly GDP data to be released on 12 December, should confirm that UK GDP growth returned, albeit modestly, in October 2025, following the contraction of 0.1% growth in September.
• On 17 December, UK’s inflation for November could confirm another modest fall in the headline rate.
• On 18 December, the Bank of England's Monetary Policy Committee could well cut interest rates to 3.75%.