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UK economic growth slows to 0.1% in Q3, missing forecasts
The UK economy expanded by just 0.1% in the third quarter, falling short of analysts' 0.2% projection and marking a sharp deceleration from earlier in 2025, according to the Office for National Statistics (ONS). The slowdown deals a setback to Chancellor Rachel Reeves, who has prioritized economic growth ahead of her upcoming Budget, where tax increases are widely anticipated.
Cyber-attack on Jaguar Land Rover drags down production
The ONS cited a "marked" decline in car manufacturing in September, driven by a cyber-attack that crippled Jaguar Land Rover (JLR) for five weeks starting August 31. Overall production output plummeted 2% in September, with car production alone dropping 28.6% due to the disruption. Even excluding the automotive sector, broader economic activity remained sluggish.
Services-encompassing retail, hospitality, and real estate-recorded modest growth, but at a slower pace than the previous quarter. Construction also advanced, though consumer spending stayed weak, raising concerns about sustained economic momentum through year-end.
Economists predict December rate cut as growth stalls
Analysts now view a Bank of England interest rate reduction in December as increasingly likely, following the weaker-than-expected GDP data and earlier reports of a softening labor market. Rob Wood, chief UK economist at Pantheon Macroeconomics, stated the figures "all but seal" a rate cut next month.
"With tax rises in the upcoming Budget likely to trim GDP by around 0.2% in 2026, there is little reason to think that GDP growth will accelerate much from here," warned Ruth Gregory, deputy chief UK economist at Capital Economics.
Businesses grapple with rising costs and policy pressures
Some firms attribute the slowdown to lingering effects of the 2024 Budget, which raised employer National Insurance contributions and the national living wage. Allan Jones, managing director of TC Morris, a West Midlands pie manufacturer, reported a £200,000 increase in annual costs for his 50-employee business.
"We've passed on some price increases, but we've had to absorb quite a bit," Jones said, expressing hope for tax relief and energy cost reductions in Reeves' forthcoming Budget.
Reeves defends record as opposition criticizes Budget approach
Responding to the ONS data, Reeves highlighted the UK's status as the fastest-growing G7 economy in early 2025 but acknowledged the need for further action. "At my Budget later this month, I will take fair decisions to build a strong economy that helps cut waiting lists, reduce national debt, and lower living costs," she stated.
Shadow Chancellor Mel Stride countered that Prime Minister Keir Starmer had "stripped the chancellor of responsibility for the Budget," leaving Reeves "in office but not in power." The ONS' Liz McKeown noted that while services like live events and retail performed well, declines in R&D and beauty sectors offset gains.
Outlook
With consumer spending subdued and tax hikes looming, economists caution that growth may remain tepid. The Bank of England's next policy meeting on December 5 will be closely watched for signals of monetary easing.
