The UK economy contracted -0.1% in September, meaning growth across Q3 as a whole came in at 0.1%. The shutdown at Jaguar Land Rover (JLR) drove most of the downshift. It accounted for almost double the hit to September’s headline GDP, wiping out gains in services and construction. Looking beyond JLR, slim growth in Q3 is reminiscent of last year when the UK economy grew strongly in the first half of the year before slowing significantly in the second. Together, this latest weak GDP data and this week's labour market reports mean a December rate cut is a near-certainty.

JLR cyber-attack drags down growth

The UK economy contracted by -0.1% in September, which aligns with our forecast and below the 0% consensus. As we mentioned in The Week Ahead, JLR and the supply-chain shutdown had a big impact on September’s figures. The manufacturing sector knocked 0.16ppts from growth, with the manufacture of motor vehicles’ part alone taking 0.17ppts. Put simply, the JLR shutdown more than explains September’s negative growth figures.

Indeed, the economy probably would’ve grown in September if it wasn’t for this. Both services and the construction sector grew 0.2% m/m, defying some relatively poor survey data in September.

Those September figures meant growth in Q3 overall was just 0.1%. This is below the Monetary Policy Committee’s (MPC) forecast for 0.2% and the slowest pace of growth since 2023 when the UK had a small, but sharp, recession.

Consumer spending rises but UK growth might weaken

And yet, consumer spending did rise 0.2% over Q3, up from 0.1% in Q2, suggesting that relentless speculation about the Autumn Budget didn’t prompt households to pull back on spending over the summer. We think that’s likely to change in Q4 because speculation really ramped up across October and November. It’s also now clear that the bulk of tax hikes will likely fall on households instead of businesses.

All told, deeper analysis of today’s figures suggests that growth in Q3 wasn’t as poor as the headlines would suggest. However, we expect growth of just 0.1% again in Q4. Autumn Budget speculation, the impact of the big increase in government spending this year starting to fade and inflation staying above 3.5% until around April next year are all weighing on UK growth prospects this quarter.

Will the UK economy pick up in 2026?

Looking ahead, the big question given the UK economy is service-driven is how the Autumn Budget will impact consumer spending. A large disinflationary and front-loaded Budget seems likely. This would satisfy financial markets concerned about the UK’s fiscal sustainability. Yet, the Autumn Budget’s key tax-raising measures are likely to fall mostly on household incomes, which could depress already subdued consumer activity this quarter

As we’ve talked about before, real household disposable incomes have risen around 6% since 2023. But, instead of spending it, households have chosen to save those gains. If households felt confident enough to dip into those savings – unlikely given the imminent tax hikes – that could soften the Budget’s blow to consumption.

In any case, the good news is that as long as the Autumn Budget is as disinflationary as the Chancellor hinted at last week, then some of the drag on demand could be smoothed by lower inflation and further interest-rate cuts. Indeed, a weak labour market report and little more than stagnation in Q3 on top of what should be a deflationary Autumn Budget means a December rate cut now feels inevitable.

Ultimately, we’re waiting to see just what the Autumn Budget contains before making any strong calls on next year’s growth. But, for now, we expect growth to slow to 1% in 2026, before rebounding to 1.5% in 2027.

Sign up to our Real Economy communications for regular commentary and analysis on the changing economic landscape.

Related insights