UK economy grew 0.1% Q3: what could Q4 hold?

After a strong start to 2025, the UK economy stalled in Q3, growing 0.1%. It’s still progress towards our forecast of 1.3% economic growth for 2025.

Fortunately, new business and household borrowing, which supports future economic growth, has remained relatively stable over Q3 and into Q4.

Financial markets – including bond, equity and foreign exchanges – have also stayed firmly accommodative, reinforcing signs of underlying economic stability.

What do the Real Economy Economic Indicators show us?

The RSM UK Real Economy Barometer unpacks official UK GDP data to give us a much clearer picture of how the UK’s real economy – the part that makes, does and serves – is actually performing.

Our latest analysis shows the UK real economy struggled in September, contracting -0.1%, in line with the UK’s headline GDP figure. In Q3 overall, the real economy’s growth slowed to 0%, slipping behind the official figure of 0.1% for the first time this year. Explore why in the tab below.

Looking ahead with our future economic-growth indicator, the RSM UK Credit Impulse shows the three-month average flow of new credit to the UK economy fell slightly to a still-positive 0.5% of GDP in September.

To complete the picture for UK businesses, our Financial Conditions Index (FCI) assesses stability in the UK’s money, bond, equity and foreign-exchange markets. Here, the environment is as its most accommodative for the past four years.

Our next set of indicators, published early December, will reveal how UK businesses, consumers and financial markets have reacted to Chancellor Rachel Reeves’s second Autumn Budget.

Until then, sign up to receive our regular economic updates and Budget 2025 commentary from our RSM UK and Ireland Chief Economist, Tom Pugh.

Last updated: 31 October 2025

Little movement in new business and household borrowing levels in September – and across Q3 as a whole – suggests consumers and businesses are holding firm at the prospect of another big tax-raising Autumn Budget.

Household new borrowing stayed at 0.3% of GDP in September. However, new business borrowing slipped slightly to 0.2% of GDP from 0.3% in August. Neither were enough to tip our Credit Impulse’s three-month marker much from its recent 0.5-0.6% path.

This new borrowing data matches signals from recent confidence surveys and should support growth.

Credit impulse explained

Credit impulse explained

Measuring the UK’s economic momentum

The RSM Credit Impulse is a real-time snapshot of new credit flowing into the UK’s private sector.

As a gauge of future economic momentum, it tracks both household and business borrowing, offering middle-market businesses insight into the direction of future growth.

How to use The RSM Credit Impulse

The RSM Credit Impulse gives you the ability to anticipate changes in the economic landscape.

It outlines capital investment and consumer spending intentions as a proportion of GDP.

• Positive values are a sign of good credit flows, investment and consumer confidence.
• Negative values suggest a tightening credit environment and caution in spending and investment.

How we calculate The RSM Credit Impulse indicator

The RSM Credit Impulse uses data from the Bank of England for lending flows and the ONS for nominal GDP. The change in lending flows is then calculated and divided by quarterly GDP to give a %.

Last updated: 14 November 2025

The real economy contracted 0.1% in September, matching the official GDP figure. The Jaguar Land Rover (JLR) and supply-chain shutdown weighed heavily on the real economy’s performance with a 28.6% m/m drop in motor vehicle manufacturing in September. This alone explains the month’s 1.8ppt fall in manufacturing.

There were some brighter spots. Construction output rose 0.2%, despite higher-than-usual rainfall and weak survey data.

Services in the real economy also rose by 0.2% in September, driven by the wholesale and retail sector rising by 1.4% m/m. Stronger performance here helped offset some of the manufacturing sector’s weakness.

For Q3 as a whole, the UK real economy stagnated. It grew 0% compared to 0.1% in the official UK GDP figures. That said, this is largely a reflection of stronger output in some volatile production sectors plus strong growth in public-sector dominated industries, both of which are excluded from the Real Economy Barometer.

Real Economy Barometer explained

Real Economy Barometer explained

Providing clarity for business leaders operating in the UK’s real economy

The Real Economy Barometer more accurately describes the economic landscape as experienced by middle-market businesses.

Focusing on the UK’s goods- and service-producing sectors, it filters out certain public-sector components from official GDP data to provide business leaders with actionable insights.

How to use The Real Economy Barometer

We can better understand where growth is coming from, the factors influencing this and what it takes in the coming months to meet growth forecasts by comparing data for real economy output with official UK GDP.

Every month, following the release of official UK GDP data, our economists calculate how the real economy – accounting for 79% of the UK economy – is performing against the:

• UK economy’s total output
• our growth forecast (currently 1.3%).

Negative values show shrinkage in the size of the economy and positive values show growth.

How we calculate The Real Economy Barometer indicator

The Real Economy Barometer strips out the impact of imputed rents, public administration, education, human health, residential care, social work, libraries and museums, and social clubs from official GDP data.

Last updated: 14 November 2025

Financial conditions have improved since our last update, rising to +1.4 from +1.2. It suggests UK financial conditions are now the most strongly supportive of growth since 2021’s post-Covid recovery.

This favourable environment should help to increase potential investment in the real economy and support growth in the months ahead. The big risk is the Autumn Budget. If gilt markets react poorly to the 26 November announcements, then we could see financial conditions slide. Were this sustained, it would compound the negative effect of any tax rises on growth.

Looking at each component of the FCI’s performance since the last update:

• Equity markets improved to +1.1, up from +0.9: the FTSE 100 is over 20% higher year-on-year.
• At +1.5, money markets continue to be supportive of growth (up from +1.4).
• Bond markets are unchanged at +0.5.
• Foreign exchange markets remain at -0.1: sterling is still well below pre-Brexit levels against the euro.

Financial Conditions Index explained

Financial Conditions Index explained

A real-time gauge of financial stress

The RSM Financial Conditions Index (FCI) is a powerful metric that monitors the level of financial stress in the UK’s money, bond, equity and foreign exchange markets.

It offers near real-time insight into financial market movements, helping business leaders to gauge how shifts might impact the broader economy and its stability.

How to use The Financial Conditions Index

The FCI shows exactly how far current financial conditions diverge from historical norms.

This means we can understand if current financial conditions are supportive of business growth, investment and consumer spending, or not.

• Positive values indicate more accommodating financial conditions and easier credit availability – prerequisites for economic expansion.
• Negative values indicate tighter financial conditions, less credit availability and higher costs – dampeners for investment, confidence and growth.

How we calculate The Financial Conditions Index indicator

Items included in the composite RSM UK Financial Conditions Index are normalised by subtracting the mean and dividing by the standard deviation for each series.

The FCI, as a Z-Score, indicates the number of standard deviations by which current financial conditions deviate from normal levels.