It’s true that the UK economy is penny farthing. These figures have emerged in the dying days before the Chancellor’s next Budget announcement. And with today’s economic growth figures from the Office for National Statistics (ONS) pointing to buoyant economic times in the UK, all seems well. It grew by 0.3% in Q2 2025, adding on top of a small increase of 0.2% in Q3 2024. Together, these figures show a notable rebound after a hard few years where the economy took some serious steps back.
Last year, the outlook wasn’t much brighter. Now we’re seeing that in the fourth quarter of 2023, the UK economy contracted by 0.3%. It had dropped by 0.2% in that year’s third quarter. With growth failing to pick up in the second quarter of 2023, it’s clear we are still living through an extraordinarily difficult economic period. A reversal started as soon as the first quarter of 2024, as the economy continued slowly coming back to life. It just expanded by 0.8% in the first quarter. In the second quarter, it even got better with a 0.6% growth rate.
Despite these hitting positive notes in early 2024, growth started to falter as the year advanced. So far, the economy has increased by a modest 0.7% in the first quarter. It only managed a paltry 0.3% in the second quarter, stunning economists. In August, analysts couldn’t stop smiling, for they were witnessing growth exceeding all forecasts. In the third quarter, that momentum was rocked, and growth tanked to just 0.1%.
The ONS announced that the economy shrank by 0.1% last month, reminding us that the headwinds are still blowing fiercely. One of the biggest drags on growth was a large drop in car production. Mercifully, this fall hasn’t been all-covered-up the UK manufacturing sector. This drop in production is indicative of larger challenges facing all sectors of our national economy.
Chancellor Rachel Reeves responded to these numbers by saying she was disappointed that the UK’s economic growth was below where she would like it to be. She cautioned that there are encouraging signs of recovery. That is all overshadowed by the continued underperformance, which is leading us down a path toward continued economic decline. It’s a marked improvement from what analysts had projected at just 0.2% growth for the third quarter. Their forecast further highlights the expectation vs. performance gap that still exists.
Stakeholders are preparing for the next Budget, due in March. These economic indicators will play a key role in determining fiscal policies and strategies aimed at fostering growth. What really matters now is the government’s response to this patchy economic performance as it will be under the watchful eyes of markets and households alike.