Our monthly economic review provides a snapshot of the latest market trends, economic indicators, and key developments shaping the UK economy. While it’s not intended as financial advice, it offers useful context for understanding how recent events could influence investments and planning decisions.
Economic Growth Loses Momentum
Recent data points to a slowdown in UK economic growth as the second half of 2025 gets underway.
According to the Office for National Statistics (ONS), GDP grew by just 0.2% in the three months to July, marking a clear drop from the 0.7% expansion in Q1 and 0.3% in Q2.
The economy was flat in July, with modest 0.1% growth in the services sector offset by a 1.3% decline in manufacturing output — the sharpest fall in a year.
Survey data reinforces this softer picture. The S&P Global UK Purchasing Managers’ Index (PMI) fell to 51.0 in September, down from 53.5 in August, signalling weaker private sector growth.
S&P Global’s Chief Business Economist, Chris Williamson, described the data as a “litany of worrying news,” citing weakening growth and declining business confidence amid speculation of possible tax rises later in the year.
Inflation Holds at an 18-Month High
Inflation remained stubbornly high in August, staying at 3.8%, according to the latest ONS figures. Food prices continued to climb, with the cost of essentials like beef, butter, milk, and chocolate up 5.1% year-on-year.
While slowing price growth in air fares provided some offset, the Consumer Prices Index (CPI) remains well above the Bank of England’s 2% target.
The Bank’s Monetary Policy Committee (MPC) held interest rates at 4.0%, as expected, while Governor Andrew Bailey cautioned that the UK is “not yet out of the woods” on inflation. He also stressed that any future rate cuts would need to be introduced “gradually and carefully.”
The MPC will meet twice more before the end of the year, with the next meeting scheduled for 6 November. Analysts remain divided — some expect another rate cut, while others predict no change until early 2026.
Retail Sales Beat Expectations
Despite challenging conditions, retail sales surprised on the upside in August.
ONS data showed sales volumes rose 0.5%, slightly above forecasts of 0.3%, helped by sunny weather.
However, over the three months to August, sales were down 0.1% compared to the previous quarter. The CBI Distributive Trades Survey reported that September sales were considered “poor” for the time of year, and retailers expect further weakness in October as consumer demand softens.
Consumer confidence is also under pressure. The GfK index dropped to -19 in September, with all five sentiment measures declining. Analysts warn that potential tax rises in the upcoming November Budget could further dent household confidence.
Labour Market Continues to Cool
The UK jobs market showed more signs of softening over the summer.
The number of workers on company payrolls fell for a seventh consecutive month, down by 51,000 in the May–July period and by a further 8,000 in August, according to ONS data.
Wage growth also slowed, with average weekly earnings (excluding bonuses) up 4.8% in the three months to July — the slowest pace since May 2022.
The ONS reported that the labour market “continues to cool,” with firms noting fewer available positions. However, there are hints that the rate of decline may be easing: vacancies ticked up slightly between June and August, marking the first increase since February 2024.
Looking Ahead
With slower growth, sticky inflation, and softening labour data, the economic picture heading into winter looks mixed. The November Budget and the Bank of England’s next rate decision will be key moments to watch as policymakers attempt to balance growth and inflation pressures.
As always, it’s important to seek professional financial advice before making investment or planning decisions.
