UK Economy Faces Stagnation as Reeves Prepares for Challenging Autumn Budget

The British economy stands at a crossroads, offering little growth momentum as Chancellor Rachel Reeves faces her second budget statement in November. Despite assurances that the economy is “stuck, not broken,” the latest GDP figures highlight an uphill struggle, with output flatlining in July after modest growth earlier this summer.

Many economists had anticipated a slowdown following stronger performance in the first half of the year—fueled by manufacturers and exporters racing to get ahead of newly imposed US tariffs. As American stockpiles have now been filled, demand from overseas has faltered and UK manufacturing output dropped by 1.1 per cent in July.

Tax changes introduced in the spring also triggered volatility in the property market and influenced car sales, leading to erratic monthly GDP readings. Consumer spending remains stagnant, with sectors most reliant on UK households seeing no growth as rising inflation and slowing wage growth put pressure on family finances—even a successful summer for English retailers could not buck the trend.

The government partly attributes the malaise to years of underinvestment by their predecessors. Yet some economists highlight that Reeves’s first budget, marked by a £25 billion increase in employer national insurance contributions, has compounded difficulties for businesses—constraining hiring and investment just as confidence was beginning to recover.

As Reeves prepares the forthcoming autumn budget, pressure is mounting from all sides. Growth prospects remain insipid, but expectations for tax rises or spending cuts to address the public finance shortfall are intensifying. Business leaders have warned that further tax hikes would threaten investment and consumer spending alike, while deep spending cuts risk significant political backlash.

International headwinds add to the challenge, with global uncertainty and protectionist measures abroad affecting trade. Despite these adversities, the outlook is not entirely bleak. Private sector activity in August showed signs of resilience and leading economic forecasters, including the IMF, expect GDP to grow by just over 1 per cent this year. While modest, such growth underscores both the fragility and persistence of the recovery as the government prepares for tough decisions this autumn.