The UK economy contracted by 0.1 per cent in the three months to October 2025, according to new figures from the Office for National Statistics (ONS), confounding economists’ expectations of no change and raising questions about the government’s growth momentum following November’s Autumn Budget.
Monthly output also slipped by 0.1 per cent in October, following a similar fall in September, pointing to a steady weakening across the economy. The latest reading represents the first quarterly contraction since late 2023, when the UK narrowly avoided a technical recession.
The ONS cited a drop in both services and construction output as the main drivers of the decline, with production showing only modest improvement. “Services fell by 0.2 per cent on the month, while construction activity slipped 0.4 per cent, offsetting a small rebound in manufacturing,” the agency said.
Economists had widely forecast zero growth for the period, suggesting the downturn came earlier and more broadly than anticipated. The figures follow weaker-than-expected business surveys and consumer spending data, reflecting reduced confidence amid tighter household budgets and cautious sentiment after the Budget.
Chancellor Rachel Reeves faces early scrutiny of her growth-focused fiscal stance, announced just weeks ago. While November’s Budget prioritised investment incentives and public infrastructure spending, today’s data highlights the challenge of translating those measures into near-term momentum.
The figures immediately reignited debate over whether the Bank of England might begin cutting interest rates in early 2026, as inflation continues to moderate and domestic activity slows. Financial markets had already begun pricing in a shift, though policymakers have reiterated that rate decisions will depend on forthcoming data.
Sterling eased slightly following the release, while gilt yields fell on expectations of a softer monetary outlook. Analysts also warned that weaker growth could complicate fiscal planning, as slowing revenues constrain the Treasury’s room for manoeuvre.
“The numbers confirm that underlying momentum has faded,” said Sandra Horsfield, economist at Investec, in comments reported by Reuters. “If December’s data follow the same pattern, the Bank of England will likely shift tone by the first quarter of next year.”
Short-term GDP estimates can be volatile, but the back-to-back declines across services, manufacturing, and construction suggest a more persistent loss of momentum. Businesses have reported slowing orders and deferred investment decisions since the Budget, while consumer spending remains fragile despite easing inflation.
External headwinds — from weaker global demand to lingering trade frictions — continue to weigh on export-oriented sectors. With households cautious and credit conditions tight, the government’s challenge will be to sustain investment-led growth through the winter without undermining fiscal discipline.
The next full quarterly GDP estimate, due early in the new year, will show whether this slowdown is temporary or the start of a more entrenched downturn.
