The UK economy is being put under pressure from expected tax rises and high interest rates, with GDP growth of just 0.1% in August according to data released on Thursday by the Office for National Statistics. The three-monthly figure of 0.3% matched that of the second quarter but was sharply down from the 0.7% recorded in the first quarter of the year. Corporate and consumer sentiment are being impacted by expected tax rises in November, while the fall in employment is anticipated to weigh on growth in the second half of the year.
The three-monthly figure of 0.3% matched that of the second quarter but was sharply down from the 0.7% recorded in the first quarter of the year.
This sluggish growth is compounding the UK’s fiscal challenges. Chancellor Rachel Reeves faces a £22bn shortfall in public finances ahead of the Autumn Budget on 26th November. The Institute for Fiscal Studies has warned that Reeves must raise at least £22bn to restore her fiscal headroom and meet borrowing rules. Analysts expect a mix of tax rises and spending cuts, with speculation around increases in income tax and VAT, in breach of Labour’s election manifesto. The cost of servicing government debt, now exceeding £100bn annually, is also straining the budget, although a recent rally in gilt prices (which move inversely to yields) could reduce this cost.
This sluggish growth is compounding the UK’s fiscal challenges. Chancellor Rachel Reeves faces a £22bn shortfall in public finances ahead of the Autumn Budget on 26th November.
The UK state pension is set to rise by 4.8% in April 2026, following the latest earnings growth figures used in the ‘triple lock’ formula. This increase will take the full new state pension to over £12,535 per year, offering a significant boost to retirees amid ongoing cost-of-living pressures. However, financial experts warn that this uplift could push more pensioners into the income tax bracket, especially if the personal allowance remains frozen at £12,570. With no indication yet of a threshold change, many older people may face unexpected tax bills despite modest retirement incomes. Campaigners are urging the government to review tax policy to ensure pension increases don’t inadvertently penalize those on low to middle incomes.
Our specialist's final thought
"The UK state pension is set to rise by 4.8% in April 2026, following the latest earnings growth figures used in the ‘triple lock’ formula. This increase will take the full new state pension to over £12,535 per year, offering a significant boost to retirees amid ongoing cost-of-living pressures."
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