UK Consumers Feel the Pinch from Tax Increases as Economy Slows

• British households saved less in the third quarter of 2025 (Q3 2025) as they felt the hit from higher taxes but still increased their spending, according to official data, which confirmed a slowdown in the broader economy. Gross domestic product grew by only 0.1%, according to the Office for National Statistics (ONS), in line with its initial estimate and 1.3% higher than Q3 2024. However, growth in Q2 was revised down to 0.2% from a previous estimate of 0.3%.
• The ONS noted that the saving ratio dropped by 0.7 percentage points to 9.5%, its lowest in over a year, as real household disposable incomes took a hit from tax increases, which outweighed income growth and inflation. Nevertheless, household consumption grew by 0.3% from Q2, when it showed no growth. This was the fastest quarter-on-quarter increase in a year.
• Finance minister Rachel Reeves increased taxes in her first budget in 2024, including on some forms of wealth income, although most of the burden fell on employers rather than individuals. Britain grew by the most among the Group of Seven large, advanced economies in the first half of 2025 (H1 2025), alongside Japan. However, it has slowed sharply since then, in part due to months of uncertainty about possible tax increases in Reeves' second budget, which she announced on November 26th.
• Last week, the Bank of England (BoE) expressed that it expected zero GDP growth in Q4 2025, but it thought that the underlying pace of economic growth was around 0.2% per quarter. "The breakdown in growth in Q3 was a bit less reliant on government spending than in the first estimate," Alex Kerr, UK economist at Capital Economics, said. However, the overall data confirmed the slowdown in the economy after its strong start to 2025, and Capital expected only 1.0% growth next year, down from 1.4% this year, Kerr said.

(Source: Reuters)