Mixed signals for UK economy ahead of Autumn Budget

The UK economy heads into tomorrow’s Autumn Budget with a complex backdrop of slowing growth, fragile confidence and easing inflation.

While challenges remain, there are glimmers of resilience in manufacturing, signs that cost pressures on businesses are receding and growing expectations of a Bank of England rate cut, offering policymakers some room to manoeuvre.

Gross domestic product edged up 0.1% in the third quarter of 2025, following 0.3% growth in the second quarter. Analysts expect flat to marginal growth in the year’s final three months, rather than outright decline. Services remain under strain, but manufacturing is showing tentative signs of recovery, helped by stabilising supply chains and improving export orders.

November’s flash PMI slipped to 50.5, signalling near-stagnation overall. Services softened, but manufacturing climbed back into expansion territory at 50.2, its strongest reading in over a year. Price pressures eased to a five-year low, suggesting inflationary risks are receding. Employment fell, yet improving order books in industry hint at underlying resilience. This divergence underscores the uneven nature of the recovery.

Confidence remains subdued, with the GfK index, which measures changes in personal finances alongside expectations for the economy, at minus 19 and retail sales down 1.1% in October. Households remain wary of big-ticket spending amid cost-of-living concerns and uncertainty over tax changes. However, inflation continues to cool. The consumer prices index dropped to 3.6%, and core inflation eased to 3.4%. Markets are now pricing in an 80% chance of a 25-basis points rate cut in December.

Job losses are rising and wage growth is slowing, but businesses are not uniformly pessimistic. While surveys show investment plans on hold for now, easing borrowing costs and stabilising input prices could unlock investment and hiring activity if fiscal measures provide clarity.

The Autumn Budget arrives at a turning point. Policymakers face the challenge of balancing fiscal discipline with measures to sustain growth. With inflation cooling and manufacturing showing green shoots, there is scope for optimism, though confidence and demand remain key hurdles.

Any targeted support for investment, housing and regional development could help offset near-term weakness. Markets will be alert to signals on business rates, infrastructure spending and planning policy, all of which could support sentiment and activity in commercial property markets.

Mixed signals dominate the economic landscape. Slowing growth and cautious consumer sentiment contrasts with easing inflation and improving industrial trends. Tomorrow’s Budget will be pivotal in determining whether these green shoots take root or the economy slips further toward stagnation.