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% growth for the year.

However, uncertainty about the 2025 Autumn Budget is likely to weigh on Q4’s performance. New business and household borrowing, which support future economic growth, slowed sharply in October.

Yet, the UK’s financial markets responded well to the Chancellor’s Budget announcements. Financial conditions have stayed firmly accommodative, reinforcing signs of underlying economic stability.

What do the Real Economy Economic Indicators show?

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 Q3. Growth slowed to 0% on the quarter, falling behind the official UK GDP figure for the first time in 2025. The real economy also shrank by 0.1% in September, matching the UK’s headline monthly GDP data.

Looking ahead, our future economic-growth indicator, the RSM UK Credit Impulse, shows the three-month average flow of new credit to UK households and businesses collapsed in October. It fell to 0.1% of GDP from 0.5% in September as Budget speculation ramped up.

Underpinning each of these measures is our Financial Conditions Index (FCI). This assesses stability in the UK’s money, bond, equity and foreign exchange markets. Here, the environment remains at its most accommodative for the past four years and reflects positive market reaction to Chancellor Rachel Reeves’s second Autumn Budget.

Read what this all means for the months ahead when our new UK Quarterly Economic Outlook is published in early 2026. Until then, sign up to receive our regular economic updates and commentary from our RSM UK and Ireland Chief Economist, Tom Pugh.

Last updated: 4 December 2025

The Credit Impulse shows how pre-Budget worries gripped firms and households in October.

This indicator of future growth works on a rolling three-month average and measures the flow of new credit into the UK economy.

It fell significantly to 0.1% of GDP from 0.5% previously. That’s the lowest level since March 2024.

The new household borrowing element slipped to 0.2% of GDP from 0.3% as consumers likely started to feel nervous about income tax hike rumours. However, the big fall was in business borrowing. The flow of new credit turned negative, registering -0.1% of GDP and down from 0.2% previously, as firms held off capital expenditure in October.

The more volatile single-month data shows new borrowing by firms actually slumped to -0.5% of GDP in October from 0.1% in September. Households were less fazed by the relentless pre-Budget rumours. But, borrowing still fell to 0.1% from 0.2% of GDP between September and October.

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: 4 December 2025

Despite the 2025 Autumn Budget’s market-rattling potential, the UK’s financial conditions remain resilient and strongly accommodative at +1.4.

Financial conditions did briefly slip to a still-comfortable +1.2 just before the 26 November policy announcements, only to swiftly return to their recent highs as the Chancellor’s statements reassured the foreign exchanges (FX), bond, equity and money markets.

Looking at each element:

• Equity markets slipped to +0.9 to +1.1: the FTSE 100 has done little more than stagnate in the last month while volatility has risen slightly.
• FX markets improved to 0 from -0.1: sterling appreciated against the euro, in part due to positive post-Budget reactions.
• Money markets dipped slightly to +1.4: they continue to contribute strongly to financial conditions.
• Bond markets remain at 0.5: the Chancellor satisfied the markets by more than doubling her headroom to £22bn from £10bn. The premium on corporate debt over government debt also fell further, which should make financing easier for firms in the real economy.

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.