UK GDP Growth Stuck at 0.1% in Q3 as Private-Sector Stabilization Emerges

Market Overview

UK economic growth remained sluggish in the third quarter, with GDP expanding by just 0.1% quarter-on-quarter, according to the final Q3 2025 data released on Monday. While the headline figure was unchanged from earlier estimates, the underlying composition of growth offered tentative signs of stabilization, particularly within the private sector.

The data suggest the UK economy is still struggling to gain momentum, but the drivers of growth are gradually shifting away from the public sector toward businesses and consumers.

Growth Composition Signals a Shift

A closer look at the GDP breakdown revealed a notable rebalancing beneath the surface. Government investment was sharply revised lower, swinging from an initially reported 3.6% increase to a 1.8% contraction, reducing the public sector’s contribution to growth.

By contrast, business investment was revised significantly higher, now showing a 1.5% quarterly increase, compared with an earlier estimate of a 0.3% decline. This improvement suggests firms may be starting to regain confidence after a prolonged period of caution driven by tight financial conditions and weak demand.

Household consumption also edged higher than previously thought, rising 0.3% quarter-on-quarter instead of the earlier 0.2% estimate, offering further evidence of resilience in private demand.

Consumer Resilience Faces Income Pressure

The modest strength in consumer spending came despite a 0.7% quarterly fall in real household incomes, highlighting the growing strain on household finances. To maintain spending, households appear to be dipping into savings.

The household saving rate fell to 9.5% in Q3, down from 10.2% in Q2, marking its lowest level in more than a year. While this has helped support consumption in the short term, economists warn it may limit the sustainability of spending growth if income pressures persist.

Broader Momentum Remains Weak

Revisions to earlier data reinforced the picture of slowing momentum. Second-quarter GDP growth was revised down to 0.2% from 0.3%, underscoring the loss of pace in the second half of 2025.

Overall, the UK economy has recorded growth in only two of the past seven months, highlighting the fragility of the recovery and the challenges facing policymakers as higher interest rates and cost pressures continue to weigh on activity.

Outlook for 2026

Looking ahead, economists at Capital Economics expect UK GDP growth to ease from around 1.4% in 2025 to 1.0% in 2026. With private-sector momentum still limited, the public sector is likely to remain a key contributor to growth in the near term.

Much will depend on whether improving business investment can be sustained and whether household spending holds up as savings buffers diminish. The trajectory of interest rates and fiscal policy will also play a crucial role in shaping the outlook.

Summary

UK GDP growth remained subdued at 0.1% in the third quarter, but the latest data reveal early signs of stabilization within the private sector. Stronger business investment and resilient consumer spending partially offset weaker government investment, even as household incomes declined. While the economy continues to struggle for momentum, the shift toward private-sector-driven growth offers a cautious note of optimism heading into 2026.

FAQ

1. Why did UK GDP growth remain weak in Q3?
Tight financial conditions, falling real incomes, and reduced government investment continued to weigh on overall economic activity.

2. What positive signals emerged from the GDP data?
Business investment was revised sharply higher, and household consumption also exceeded earlier estimates, pointing to improving private-sector resilience.

3. Why is the fall in the household saving rate important?
It suggests consumers are using savings to maintain spending, which may not be sustainable if income growth remains weak.

4. How has growth performed over recent months?
The UK economy has grown in only two of the past seven months, highlighting fragile momentum.

5. What is the outlook for UK growth in 2026?
Economists expect growth to slow to around 1.0%, with the public sector likely to remain a key support amid limited private-sector momentum.

Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or economic advice. Readers should conduct their own research or consult a qualified professional before making financial decisions.