UK Economy Shrinks as Consumer Demand and Manufacturing Recovery Falter
Gloomy days for manufacturers Image: HarryDaniels
- GDP contracts 0.1% in 3M to October
- First fall since late 2023 - Production drags on growth due to services, construction - Manufacturing rebound disappoints despite JLR plant reopening - Markets price high probability of December BoE rate cut
By Harry Daniels LiveSquawk News @HarryDaniels71
12 December 2025 | 11:00 GMT
LONDON – Official UK figures showed the economy shrank heading into the final quarter of the year as households curtailed spending ahead of the Autumn Budget.
The Office for National Statistics said GDP contracted 0.1% in the three months to October, missing expectations for a flat reading and slipping from growth of 0.1% in the three months to September. It marked the first three-month fall in real GDP since December 2023.
Breaking down the report, ONS director of economic statistics Liz McKeown pointed to a further decline in production alongside stalled services output as the main drivers of the three-month-on-three-month contraction.
Services output was flat, slightly weaker than the 0.1% forecast and down from 0.2% previously. McKeown said contractions in wholesale and scientific research were offset by growth in rental and leasing activity and retail.
Production output fell 0.5% on a three-month basis, driven largely by a decline in the manufacture of motor vehicles, trailers, and semi-trailers, matching the pace of contraction seen in the preceding three-month period.
Analysts had expected a rebound in manufacturing following the reopening of Jaguar Land Rover’s plant in Coventry after its prolonged cyber-attack-related shutdown, but expectations of a swift recovery appeared premature.
The ONS said output of transport equipment dropped 8.7%. Economists had forecast a quick bounce back for the carmaker. Jack Meaning, chief UK economist at Barclays, mused: “It looks like it might take a little bit longer.”
There was also disappointing news from the construction sector, where output contracted 0.3% over the three months to October.
Monthly figures offered little relief heading into Q4. Overall activity fell 0.1% in October, matching September’s decline and undershooting forecasts for a 0.1% increase. Services and construction output slid 0.3% and 0.6% respectively, while production rose 1.1%.
Matt Swannell, chief economic adviser to the EY ITEM Club, said: “Today’s data strengthens the likelihood that growth will remain subdued moving into 2026, as tighter fiscal policy, weakening real income growth and a sizeable share of households refinancing mortgages at higher rates weigh on the economy.”
Conditional easing
Next week, the Bank of England’s Monetary Policy Committee is scheduled to announce its policy decision on Thursday, 18 December, with the central bank widely expected to cut interest rates by 25 basis points to 3.75%.
Barclays’ Jack Meaning said Friday’s data was “unambiguously weak”, adding that it extended a pattern seen through much of the year, with growth slowing from a relatively strong start to weaker readings more recently.
Interest rate markets are pricing in roughly an 80% probability of a cut next week.
The MPC remains divided on the need for immediate easing, though analysts say recent comments from policymakers have increasingly hinted that a rate reduction is likely.
“Data has broadly validated the MPC’s November forecast, although a significant amount of information is still due before next week’s meeting,” Meaning said. “What is more, the Autumn Budget has passed without crystallising any inflationary event risk.”
Investors will get labour market data for October on 16 December, and CPI data for November on 17 December.
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- GDP contracts 0.1% in 3M to October
- First fall since late 2023
- Production drags on growth due to services, construction
- Manufacturing rebound disappoints despite JLR plant reopening
- Markets price high probability of December BoE rate cut
By Harry Daniels
LiveSquawk News
@HarryDaniels71
12 December 2025 | 11:00 GMT
LONDON – Official UK figures showed the economy shrank heading into the final quarter of the year as households curtailed spending ahead of the Autumn Budget.
The Office for National Statistics said GDP contracted 0.1% in the three months to October, missing expectations for a flat reading and slipping from growth of 0.1% in the three months to September. It marked the first three-month fall in real GDP since December 2023.
Breaking down the report, ONS director of economic statistics Liz McKeown pointed to a further decline in production alongside stalled services output as the main drivers of the three-month-on-three-month contraction.
Services output was flat, slightly weaker than the 0.1% forecast and down from 0.2% previously. McKeown said contractions in wholesale and scientific research were offset by growth in rental and leasing activity and retail.
Production output fell 0.5% on a three-month basis, driven largely by a decline in the manufacture of motor vehicles, trailers, and semi-trailers, matching the pace of contraction seen in the preceding three-month period.
Analysts had expected a rebound in manufacturing following the reopening of Jaguar Land Rover’s plant in Coventry after its prolonged cyber-attack-related shutdown, but expectations of a swift recovery appeared premature.
The ONS said output of transport equipment dropped 8.7%. Economists had forecast a quick bounce back for the carmaker. Jack Meaning, chief UK economist at Barclays, mused: “It looks like it might take a little bit longer.”
There was also disappointing news from the construction sector, where output contracted 0.3% over the three months to October.
Monthly figures offered little relief heading into Q4. Overall activity fell 0.1% in October, matching September’s decline and undershooting forecasts for a 0.1% increase. Services and construction output slid 0.3% and 0.6% respectively, while production rose 1.1%.
Matt Swannell, chief economic adviser to the EY ITEM Club, said: “Today’s data strengthens the likelihood that growth will remain subdued moving into 2026, as tighter fiscal policy, weakening real income growth and a sizeable share of households refinancing mortgages at higher rates weigh on the economy.”
Next week, the Bank of England’s Monetary Policy Committee is scheduled to announce its policy decision on Thursday, 18 December, with the central bank widely expected to cut interest rates by 25 basis points to 3.75%.
Barclays’ Jack Meaning said Friday’s data was “unambiguously weak”, adding that it extended a pattern seen through much of the year, with growth slowing from a relatively strong start to weaker readings more recently.
Interest rate markets are pricing in roughly an 80% probability of a cut next week.
The MPC remains divided on the need for immediate easing, though analysts say recent comments from policymakers have increasingly hinted that a rate reduction is likely.
“Data has broadly validated the MPC’s November forecast, although a significant amount of information is still due before next week’s meeting,” Meaning said. “What is more, the Autumn Budget has passed without crystallising any inflationary event risk.”
Investors will get labour market data for October on 16 December, and CPI data for November on 17 December.