In this article, I outline the headlines from the latest ONS statistics and business confidence surveys and also reflect on the Autumn budget and what this means for 2026.

Key Economic Insights:

• Global slowdown continues: IMF forecasts growth falling from 3.3% (2024) to 3.1% (2026), with advanced economies facing modest 1.5% growth and risks from tariff escalation and a potential ‘AI bubble’
• UK labour market weakening: Unemployment has risen to 5.1%, with payrolled employees down 171,000 year-on-year and continued job losses despite vacancies holding at 729,000
• Growth momentum stalls: UK GDP fell 0.1% in Q3 2025, with services flat, production down 0.5%, and construction down 0.3% – though inflation eased to 3.2%
• Mixed business confidence: S&P/CIPS PMI shows modest expansion with manufacturing at 15-month high (51.2), but Lloyds Barometer fell 8 points to 42%, with confidence declining across 10 regions
• Consumer confidence reverses: The GfK index dropped to -19 in November as households pull back on major purchases and economic optimism dims
• Structural challenges persist: the OBR now views UK’s low productivity growth (1.0%) as permanent structural feature, not a temporary puzzle – compounded by decades of chronically low capital investment at 17-18% of GDP vs G7 average of 22-23%
• 2026 outlook uncertain: Government has policies for stability but lacks clear growth strategy – increased employer costs from NI and minimum wage rises add pressure
• Call to action: Economic developers must maintain flexible, responsive strategies to support businesses through this period of heightened uncertainty and adapt to rapidly changing conditions

The Global Picture

The IMF is projecting global growth to slow from 3.3% in 2024 to 3.2% in 2025, and then 3.1% in 2026. Advanced economies like ours are looking at growth of around 1.5% – that’s pretty modest by historical standards. This slowdown is happening despite trade tensions remaining relatively contained. Countries have largely refrained from retaliating to US tariffs, and businesses have proved quite agile at re-routing supply chains.

However, there are significant risks on the horizon that we need to be aware of. The IMF is particularly concerned about the possibility of further tariff increases causing supply chain disruptions, which could reduce global output by 0.3% next year. They’re also watching what they call an ‘AI bubble’ – drawing parallels with the dot-com boom of the late 1990s. There’s tremendous market optimism around transformative technology driving up valuations, but we’ve seen how that can play out.

Other risks include pressure on the independence of economic institutions – essentially, populism versus sound economics – and fiscal vulnerabilities as borrowing costs rise. And critically for us, there are potential labour supply shocks, especially in economies facing ageing populations and skills shortages. That last point is directly relevant to Berkshire.

Interestingly, business confidence globally remains reasonable. In a recent KPMG survey of 1,350 global CEOs, 92% are planning to increase headcount over the next 12 months, and AI remains a top investment priority. However, CEO confidence in the global economy itself has dropped to 68% – it’s lowest level since 2021. So, there’s a mixed picture: cautious optimism, but with significant headwinds.

Why keeping up to date with economic and market trends and business confidence matter for local and regional economic development?

Economic growth, output and the business outlook significantly influence business planning for investment, recruitment and job retention. Local economic developers are concerned with getting and maintaining investment, business growth and jobs in their communities. It also matters who gets the jobs and benefits, but economic developers need to tailor their approaches and responses to current and future economic conditions.

Economies are dynamic and change. Best-practice economic developers monitor this, are agile and pivot to respond to changing circumstances.

UK labour market: concerning deterioration as unemployment rises

• The UK unemployment rate for people aged 16 years and over was estimated at 5.1% in August to October 2025. This is up in the latest quarter and above estimates of a year ago.
• Payrolled employees decreased by 38,000 during November October 2025, marking continued weakness.
• The early estimate of payrolled employees for November 2025 decreased by 171,000 (0.6%) on the year, and by 38,000 (0.1%) on the month, to 30.3 million.
• The UK Claimant Count for November 2025 increased on the month but decreased on the year to an estimated 1.683 million.
• The estimated number of vacancies in the UK are broadly unchanged on the quarter; early estimates suggest a small decrease of just 2,000 (0.2%) vacancies to 729,000 in September to November 2025.
• Annual growth in employees’ average earnings in Great Britain for regular earnings (excluding bonuses) was 4.6%, and for total earnings (including bonuses) was 4.7% in August to October 2025.

UK economic growth stalls in Q3 2025

In the three months to October 2025, compared with the three months to July 2025:

• Real gross domestic product (GDP) fell by 0.1%, following growth of 0.1% in the three months to September 2025 and 0.2% in the three months to August 2025.
• Services output experienced no growth, compared with growth of 0.2% in the three months to September 2025, continuing the recent trend of slowing growth in the service sector.
• Production output fell by 0.5%, largely because of a fall in the manufacture of motor vehicles, trailers and semi-trailers in this period; this follows a fall of 0.5% in the three months to September 2025.
• Construction output fell by 0.3%, compared with a growth of 0.1% in the three months to September 2025.

In the month to October 2025:

• Monthly GDP is estimated to have fallen by 0.1%, following a fall of 0.1% in September 2025 and no growth in August 2025.
• Services fell by 0.3% and construction fell by 0.6%, whereas production grew by 1.1%, in October 2025.

UK inflation slowed sharply to 3.2% in November as food prices ease, marking the third month that inflation has fallen.

Understanding the growth slowdown

Figures from the Office for National Statistics (ONS) showed gross domestic product fell by 0.1%, after a 0.1% drop in output in September. City economists had predicted a 0.1% rise in October. The ONS reported that a sharp 0.3% decline in output in Britain’s dominant service sector contributed most to the fall.

Much of the decline was driven by weakness in car sales and broader retail spending, alongside a slump in computer programming and consultancy activities. Construction output fell by 0.6%, while the production sector – which includes manufacturing – rose by 1.1% amid a recovery from the JLR attack that was weaker than hoped for.

The November Budget Statement

It’s worth recapping the prognosis for the economy, the details of the budget and what it means.

The Institute for Fiscal Studies analysis of the November budget tells an interesting story. The expected fiscal crisis never materialised, largely due to a £16 billion increase in forecast tax receipts from fiscal drag and growth in heavily-taxed sectors. However, the budget relies on what the IFS calls ‘near-heroic restraint’ in public spending – just 0.5% real-terms growth in 2028-29 and 2029-30, relying on £4 billion in ‘efficiency savings’.

The bottom line from the IFS is stark: low growth outlook, fiscal stability but through ad hoc measures rather than dealing with fundamental challenges, and without productivity improvements, more tough budgets will follow. This national context creates a challenging environment for local economic development.

Business confidence shows divergent trends across sectors and surveys

S&P Global/CIPS UK Composite PMI signals modest expansion with strong improvement in manufacturing confidence

The S&P Global UK Manufacturing PMI rose to 51.2 in December 2025 from 50.2 in November, beating forecasts of 50.4 and marking the strongest expansion since September 2024. Manufacturing output expanded for the second consecutive month, reaching its sharpest pace in fifteen months, supported by stronger domestic demand. There was also a renewed upturn in new orders, growing at the fastest pace in 14 months. Meanwhile, employment continued to decline amid cost pressures and uncertainty. Input price inflation accelerated to its fastest pace since May, driven by wage growth, rising fuel, and tech costs, while factory gate prices rose to the highest level since August. Business optimism improved, with manufacturers signalling a modest recovery in output expectations, though concerns remained over competitive pressures and elevated operating costs domestically and abroad.

The S&P Global Flash UK Services PMI rose to 52.1 in December 2025 from 51.3 in November, exceeding market forecasts of 51.6, according to the flash estimate. This marked a two-month high and the eighth consecutive month of expansion in the sector. Business activity accelerated in December, driven by the largest increase in new orders in 14 months and a rebound in overseas demand, ending a 13-month decline. Employment continued to fall for the 15th consecutive month amid persistent cost pressures. Input costs rose at the fastest pace since May, pushing prices charged to their highest level since August. Backlogs of work edged higher for the first time since February 2023. Looking ahead, business confidence for the year ahead strengthened to its second-highest level since October 2024, reflecting a cautiously optimistic outlook among companies despite ongoing cost and staffing pressures.

Lloyds Bank Business Barometer shows weaker confidence, but above long-term average with recovery in retail

Business confidence weakened in November, marking its second decline in three months. The headline index fell by 8 points to 42%, reflecting softer expectations for firms’ own trading prospects and reduced optimism about the economy compared to summer highs, though both measures remain above their long-term averages.

• Business confidence weakened in November, marking its second decline in three months.
• Survey responses were collected before the Budget, adding a layer of uncertainty.
• Hiring intentions remain positive, though they eased compared to last month.
• Pay pressures are expected to moderate, with price pressures also showing signs of relief.
• Confidence fell across 10 regions and nations, the broadest decline since April.
• Retail confidence outperformed other sectors and remains higher than a year ago.

NatWest Regional Growth Tracker shows recovery from September’s sharp downturn

Half of the 12 nations and regions monitored recorded a rise in business activity in October, up from just three in September, with sustained growth in the East of England, London and South West.

• London recorded the strongest growth for the fourth month running (index at 55.9), followed by the South East (53.1) and North East (52.3)
• The North East, South East and West Midlands experienced a return to growth after September’s dip
• Wales (48.5) registered at the bottom of the rankings but at a noticeably slower rate of decline than in September
• October saw a rise in employment in three regions – which was the most in almost a year – and there were signs of some stability almost everywhere else
• Businesses in most areas reported slower increases in their costs in October

Consumer confidence reverses

The GfK Consumer Confidence Index decreased to -19 in November from -17 in October. Forward looking measures for confidence in personal finances and the broader economy each slipped by 2 points to 1 and -32, respectively. The major purchase index, which tracks willingness to buy big ticket items, also dropped by 3 points to-15.

Medium to Long term Challenges for the UK

Low Growth and Productivity

UK economic growth has stalled dramatically – we managed just 0.1% growth in Q3 2025. The Bank of England is forecasting 1.5% growth for 2025, which is modest. More concerning is the productivity picture. The Office for Budget Responsibility has now revised down its medium-term productivity growth forecast to just 1.0%, and they’ve made a significant judgement: they now view the UK’s stubbornly low productivity growth as a permanent structural feature of our economy, not a temporary ‘puzzle’ that will resolve itself.

Chronically Low Capital Investment for Decades

Chronically low capital investment partly explained this low productivity. The UK consistently ranks at or near the bottom of the G7 for investment, hovering around 17-18% of GDP compared to a G7 average of 22-23%. This isn’t a single cause – it’s a combination of political uncertainty, restrictive planning, financial market structure, and the nature of our economy.

Looking ahead: 2026 and all that

The UK economy has remained remarkably stable, with business confidence remaining at a decent level in 2025, despite all the turbulence from US Trade Policy and the Ukraine War. The outlook for unemployment has worsened, of course – but it is hard to say decisively whether that’s down to global economic and technology trends or UK policies for increasing employer National Insurance contributions and the National Minimum Wage.

As I’ve said on other forums – the UK government has some decent policies for stability, but doesn’t have any overt policies for economic growth, or stimulating increased capital spending and productivity. Hope – that something will happen in the global economy to help turn things around – is not a strategy. We need some tangible growth policies that businesses also recognise and invest into.

For economic development professionals, these mixed signals underscore the importance of maintaining flexible, responsive strategies that can adapt to rapidly changing conditions while supporting businesses through this period of uncertainty.

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