Preliminary figures released by the Office for National Statistics (ONS) indicate that the United Kingdom’s economy expanded by a modest 0.1% in the third quarter of the year.
This figure, covering the July to September period, was weaker than the 0.2% growth anticipated by economists polled by Reuters, and marks a further deceleration from the 0.3% growth recorded in the second quarter.
The data suggests that uncertainty regarding the government’s forthcoming budget and the ripple effects of higher US tariffs are continuing to dampen the pace of activity.
The monthly figures pointed to a contraction, with the economy shrinking by 0.1% in September, following a period of no growth in August.
This August figure was itself revised down from a previously estimated 0.1% expansion.
JLR factory closure impacts manufacturing, dragging down growth
The decline in overall output was led by a substantial fall in the production sector, which saw a 2.0% drop in September.
A key factor driving this weakness was the manufacturing sector, which experienced a particularly sharp 28.6% decline in the manufacture of motor vehicles, trailers, and semi-trailers.
“Across the quarter as a whole manufacturing drove the weakness in production. There was a particularly marked fall in car production in September, reflecting the impact of a cyber incident, as well as a decline in the often-erratic pharmaceutical industry,” Liz McKeown, ONS Director of Economic Statistics, said.
The closure of Jaguar Land Rover’s UK factories throughout September due to a cyber incident clearly caused a significant drop in activity, contributing a 0.17 percentage point drag on monthly GDP.
“Much of the 0.1% m/m fall in September and muted 0.1% q/q rise in GDP in Q3 was due to the hit to manufacturing activity caused by the Jaguar Land Rover cyber-attack, which will be reversed in Q4,” said Ruth Gregory, deputy chief UK economist at Capital Economics.
“Even so, the big picture is that the economy is struggling to gain decent momentum in the face of higher taxes and soft overseas activity. And 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.”
Fiscal black hole forces chancellor’s hand
This sobering economic backdrop provides the context for Finance Minister Rachel Reeves’ upcoming Autumn Budget on November 26.
The Chancellor is widely expected to announce a raft of fresh tax hikes in a bid to fill a substantial fiscal black hole, estimated by the Institute for Fiscal Studies to require around £22 billion just to meet the government’s rule of balancing day-to-day spending with tax revenues by the end of the decade.
Earlier this week, Ms. Reeves indicated that she might be forced to break pre-election promises not to raise rates of income tax, national insurance, and value-added tax, describing the impending budget as “difficult.”
“We had the fastest-growing economy in the G7 in the first half of the year, but there’s more to do to build an economy that works for working people,” Reeves said responding to Thursday’s data.
“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.”
Bank of England ponders a December rate cut
Experts fear the prospect of tax hikes will impact consumer spending and overall economic activity; however, the impact could be mitigated to an extent if the Bank of England (BOE) decides to cut interest rates at its final meeting of the year on December 18.
At its most recent meeting last week, the central bank held off trimming rates, with Governor Andrew Bailey explaining that the Monetary Policy Committee (MPC) wished to see further data on inflation and the labour market before taking action.
“We believe the MPC [BOE’s monetary policy committee) would reduce rates in December even with an upside GDP surprise, as a likely contractionary Budget on November 26 dominates its deliberations,” Wood said in emailed analysis ahead of the GDP data, CNBC said.
“But growth is proving resilient, running close to the UK’s potential of 0.3% quarter-to-quarter despite strong headwinds from fiscal and global uncertainty.”
The UK had been the fastest-growing among the Group of Seven economies earlier in the year, a position bolstered by a ramp-up in exports in anticipation of US tariffs.
But similar to other nations, this growth has slowed as that ‘tariff front-running’ effect has reversed.
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