UK economy stabilised in Q2: what’s happening in Q3?

After a strong start to 2025, which saw the UK economy grow around 1.1% in the first half of the year, the UK economy stalled in Q3. Confirming the shift from momentum to stagnation, we forecast 0.2% growth overall for the third quarter.

Official UK GDP data saw output dip below zero (-0.1%) in July, before bouncing back to 0.1% growth in August. Even if September’s output shrinks by the same amount as in July, then the UK economy will still have grown by 0.2% in Q3.

Stable new business and household borrowing as a proportion of GDP over the summer supported August’s modest growth. Similarly, financial markets – including bond, stock and foreign exchanges – remained firmly accommodative, reinforcing signs of underlying economic stability.

All indicators point to progress towards our forecast of 1.3% economic growth for 2025 as we embark on Q4.

What do our UK economic indicators suggest is in store for Q4?

The RSM UK Real Economy Barometer focuses on how the majority of UK businesses – those involved in the production, purchase and flow of goods and services – are faring in comparison to official GDP data.

Our latest analysis shows the UK real economy grew 0.1% in August. This is in step with the wider economy. What’s more, our assessment of the latest official revisions to UK economic data as we head towards the Autumn Budget is that the UK’s real economy was 0.9% bigger in July 2025 than previously estimated. Nevertheless, we expect growth in Q3 overall to slow compared to Q1 and Q2.

On the RSM UK Credit Impulse – our forward-looking indicator of economic growth, which captures the appetite and ability of businesses and consumers to borrow – the three-month average flow of new credit to the UK economy fell slightly to 0.5% of GDP in September.

To complete the picture for UK businesses, our Financial Conditions Index (FCI) weakened slightly from its +1.3 high this year to return to the 13-week average of +1.2.

Our next set of indicators, published in early November, will show how UK businesses, consumers and financial markets have been responding to uncertainty ahead of Chancellor Rachel Reeves’s second Autumn Budget.

Until then, sign up to receive our regular economic updates, and read RSM UK Chief Economist Tom Pugh’s commentary of key datapoints, weekly Economic Voice briefings and our latest UK Quarterly Economic Outlook.

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: 31 October 2025

The UK real economy bounced back in August to post 0.1% growth after July’s revision to -0.1% (from 0%).

This performance moves us closer to our growth forecast for the year of 1.3%. However, uncertainty around the Autumn Budget may weigh on confidence and decision-making for households and businesses.

Services (0.1%) and manufacturing (0.7%) made up the bulk of August’s growth in the real economy. This while construction output shrank 0.3% due to a collapse in repair and maintenance in private housing.

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: 31 October 2025

The latest UK financial conditions data show the landscape has weakened marginally from its high this year of +1.3 to +1.2, which is also the 13-week average.

Conditions remain largely stable and are well into accommodative territory, which will help to improve access to credit for firms in the real economy.

Looking at the detail:

• Equity markets are unchanged (+0.9).
• Money markets – the most supportive element of financial conditions – are unchanged (+1.4).
• Financial exchanges are unchanged (-0.1), with the pound remaining weak against the euro.
• The bond market component is unchanged (+0.5).

However, one risk to this stable picture comes from the Autumn Budget on 26 November. If the markets were to assess the Chancellor’s plans as lacking credibility, then this could raise volatility across each of these components. That could impact the UK macroeconomic outlook in the medium term.

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.