UK GDP Shock: 0.1% Drop Sparks Urgent Rate-Cut Calls

UK economy slips by 0.1%, fueling concerns of a deeper UK economic slowdown and boosting expectations that the Bank of England may cut interest rates next week.

sarah

Dec 12, 2025 - 14:58

UK GDP Shock: 0.1% Drop Sparks Urgent Rate-Cut Calls

According to the latest official figures, the UK economy experienced a sudden decline ahead of the budget.

The Office for National Statistics (ONS) said the economy contracted by 0.1% in October, while economists had expected a 0.1% increase. The economy also contracted by 0.1% in the three months to October.

The cyber-attack on Jaguar Land Rover continued to impact car production, with a slight recovery in October compared to the previous month's decline, while analysts said uncertainty ahead of the budget slowed consumer and business spending.

Analysts said the weaker-than-expected figures strengthen the case for the Bank of England to cut interest rates at its meeting next week.

Also Read

Sainsbury’s Opens Huge UK Store, 110 Jobs Created

The government has made economic growth one of its key priorities.

A Treasury spokesperson said the government was working to boost economic growth by reducing energy bills and making major infrastructure investments. "We are determined to defy growth forecasts and create good jobs that benefit everyone, while also allowing us to invest in better public services," the spokesperson said.

Shadow Chancellor Sir Mel Stride blamed the budget for the sudden drop, saying it was "a direct result of Labour's economic mismanagement."

"For months, Rachel Reeves has been misleading the British public. She said she wouldn't raise taxes on working people - she broke that promise again. She insisted there was a black hole in the public finances - but that wasn't the case."

Ruth Gregory, deputy chief UK economist at Capital Economics, said the sudden slowdown in the economy is "another reason to expect the Bank of England to cut interest rates next Thursday."

He said, "It's surprising that the economy has grown in only one of the last seven months."

Also Read

European Stocks Eye Lower Open Despite Wall Street Gains

In the three months to October, production output fell by 0.5%, primarily due to a 17.7% drop in vehicle production. A cyberattack on Jaguar Land Rover halted production at its UK plants throughout September, and factories gradually resumed operations from the beginning of October.

The resumption of vehicle production helped boost UK production output that month, which grew by 1.1%.

However, the ONS reported that the improvement in vehicle production was small, as it was still well below the level seen in August.

The services sector, which includes areas such as professional services and retailing, did not grow at all in the three months to October.

Monthly GDP figures are more variable than three-month rolling data, which is considered to provide a better insight into growth.

But Jack Meining, UK chief economist at Barclays Bank and a former adviser to the Bank of England, told the BBC's Today programme that the new data showed the economy was "clearly weak."

He said, "It's the same story we've seen almost all year, with growth slowing from initially strong numbers to now very weak numbers, and in fact, contracting altogether."

Also Read

India Cuts Rates to 5.25% Amid Economic Weakness

"Ultimately, part of today's story is that we haven't seen as much of a rebound as we had hoped after the Jaguar Land Rover shutdown. We thought it would all come back very quickly; it looks like it may take a little longer."

Mr. Meining further said that Barclays' data showed that pre-budget uncertainty had an impact on the economy, as people "postponed purchases and major spending decisions."

Scott Gardner, investment strategist at JPMorgan Personal Investing, said that budget speculation before the Chancellor's speech had a "very negative impact" on spending.

He said, "Budget speculation and uncertainty about potential tax changes dampened the mood of businesses and consumers, leading some to postpone important decisions until after the Budget." Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research, said the Chancellor's increase in fiscal buffers in the Budget "will help reduce uncertainty in the coming year," but it's unclear whether this will strengthen economic activity.

But Yael Selfin, chief economist at KPMG UK, said investment from the private sector and the government "could help boost growth in the coming year."

"Because of this, we expect investment to be a significant contributor to growth until 2026," she said.

Thank you for reading this content.