Budget tax rumours holding back UK economic growth
The UK economy is expected to have grown by just 0.2 per cent in the third quarter of the year, economists have predicted, with the upcoming Budget cooling activity and leaving investors on edge.
A Bloomberg poll of economists estimated the UK economy grew by just 0.2 per cent in the third quarter of the year.
The poll also predicted zero growth for the month of September, which is lower than the 0.1 per cent rise in GDP over August.
The slowdown over the second half of the year is drastic in comparison to one per cent growth in the first six months of 2025, driven by front-loading by UK companies ahead of President Trump’s tariff announcements.
Economists have pointed the finger at Budget speculation in the lead-up to 26 November when Chancellor Rachel Reeves looks set to raise some £30bn in taxes.
The Bank of England’s monetary policy report said spending levels across the UK economy had slumped due to Budget speculation.
Bank researchers said more bosses had complained that increased uncertainty about the Budget meant demand had waned.
Growth comes from government spending
Deutsche Bank’s Sanjay Raja said growth hopes would be buoyed by high government spending, which is expected to have surged by 0.6 per cent in the quarter.
The bank also expected public sector investment to have risen by one per cent while the main drag on output would have come in trade.
HSBC’s UK economist Emma Wilks said there was some cause for mild optimism in upcoming results to be released by the Office for National Statistics (ONS) this Thursday.
“The bar is low for good news on the UK economy and while the uncertainty around the upcoming Autumn Budget persists, the latest UK data appeared, at least, to show some stabilisation in the economy,” Wilks said.
“[S&P Global’s] PMIs surprised to the upside in October, consumer confidence held at its 2025 average, and despite stagnant GDP growth in August and July, we expect the economy to have grown over the third quarter as a whole – albeit at a slower pace than in the first two quarters of 2025.”
UK economy’s unemployment problem
Economists are also eagerly waiting for labour market and wage growth data to be published on Tuesday morning.
The latest set of data revealed that the unemployment rate had inched up to 4.8 per cent while wage growth had dropped slightly to 4.7 per cent in the three months to August.
City analysts believe that the unemployment rate will rise higher to 4.9 per cent while pay growth excluding could continue on its downward trend to 4.6 per cent.
The data will be seen as crucial ahead of the Bank’s next decision in a month’s time on whether to cut interest rates by 25 basis points and provide the UK economy with some more firepower.
Weaker labour market data could sway Governor Andrew Bailey, as well as some of the Monetary Policy Committee (MPC)’s most hawkish members, to vote for borrowing costs to be lowered.