The UK economy unexpectedly contracted by 0.1% in September 2025 according to data released by the Office for National Statistics on Thursday, marking the second monthly decline in the third quarter and underscoring growing economic fragility. The ONS attributed the slump largely to a 29% drop in motor vehicle production, exacerbated by a cyberattack that halted operations at Jaguar Land Rover. While services and construction sectors posted modest gains of 0.2% and 0.1% respectively, the overall quarterly GDP growth slowed to just 0.1%, down from 0.3% in Q2. With the surprise jump in UK unemployment also reported this week, swap markets are now implying an 80% chance of a quarter of a percentage point rate cut by the Bank of England in December.
The ONS attributed the slump largely to a 29% drop in motor vehicle production, exacerbated by a cyberattack that halted operations at Jaguar Land Rover.
Chancellor Rachel Reeves is set to deliver the Autumn Budget on 26th November, facing pressure to address a fiscal shortfall estimated between £20-£30bn. Speculation is mounting around potential tax reforms, including changes to inheritance tax, capital gains tax, and salary sacrifice schemes, although the government has seemingly ditched their manifesto-busting plan to increase income tax rates. The FTSE 100 fell 1.1% on the Friday open following the news, with Sterling also down 0.4% against both the dollar and euro. Gilts prices also fell, having been steadily rallying over the last few weeks, pushing the 10-year gilt yield up to 4.56% in early trading.
The FTSE 100 fell 1.1% on the Friday open following the news, with Sterling also down 0.4% against both the dollar and euro.
In corporate news, Vodafone’s announcement of strong first half-year results, including service revenue growth in key markets and a 2.5% dividend increase, helped lift its share price by over 3% as investors responded positively to signs of operational momentum and progress on its UK merger with Three. SSE saw a more dramatic surge, with shares jumping more than 11% following the unveiling of a £33bn investment plan aimed at upgrading the UK’s electricity grid and accelerating renewable energy deployment. The market interpreted this as a bold commitment to long-term growth and infrastructure leadership. Diageo’s stock leapt 7% on Monday morning following the announcement former Tesco boss Sir Dave Lewis would take over as chief executive in the new year. Last week, a profit warning had sent the drink makers stock plummeting to 10-year lows, as the company faces slowing demand in China and the US.
Our specialist's final thought
"The market interpreted this as a bold commitment to long-term growth and infrastructure leadership. Diageo’s stock leapt 7% on Monday morning following the announcement former Tesco boss Sir Dave Lewis would take over as chief executive in the new year."
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