Published by Global Banking & Finance Review®
Posted on October 24, 2025
3 min readLast updated: January 21, 2026
Add as preferred source on GoogleThe UK economy shows resilience with rising consumer spending and steady inflation, setting a positive tone ahead of the expected tax-hike budget.
By William Schomberg and David Milliken
LONDON (Reuters) -British businesses might be at a turning point and consumers unexpectedly increased their spending last month, data showed on Friday, adding to other better news for finance minister Rachel Reeves ahead of next month's budget.
A gauge of the country's services and manufacturing sectors has sped up in October after almost contracting last month, suggesting nervousness about possible tax increases was not overwhelming employers.
Chris Williamson, chief business economist at S&P Global Market Intelligence, which produces the purchasing managers' index, said September might have been a low point for the economy although employers remained edgy.
"Companies are clearly treading cautiously in terms of spending, investment and hiring ahead of the upcoming budget," Williamson said.
Official retail sales figures for September, also published on Friday, showed a surprise 0.5% rise in sales volumes - defying forecasts for a fall - helped by demand for new iPhones and for gold from online jewellers.
A separate survey showed consumer confidence rose a bit this month with households more willing to spend.
Data from earlier in the week showed inflation held steady when it had been expected to rise and government borrowing - while at its highest since 2020 - was running less far ahead of official forecasts than previously estimated.
"All in all, a pretty good week of data for the UK," said Simon Wells, chief European economist at HSBC.
The big picture remains one of an economy growing too slowly to make a large difference for households struggling with the high cost of living or for a government still heavily reliant on a jittery bond market to cover its spending.
But economists said the indicators, plus a recent drop in borrowing costs in financial markets, created a better backdrop for Reeves as she prepares her November 26 budget which is expected to include tens of billions of pounds in tax increases.
The weaker-than-expected inflation pressure in particular, combined with signs of a slowdown in Britain's jobs market, has put the prospect of an interest rate cut by the Bank of England back on the table for either late 2025 or in February next year.
"What's more, the household saving ratio is extremely high, which means there is room for households to save less to offset the impact on disposable real incomes, especially if a credible budget can prevent another damaging bout of budget speculation next year," Thomas Pugh, chief economist at RSM UK, said.
(Writing by William Schomberg; Editing by Toby Chopra and Hugh Lawson)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured annually.
Consumer spending refers to the total amount of money spent by households on goods and services. It is a key driver of economic growth.
The UK economy encompasses the economic activities and financial systems of the United Kingdom, including production, consumption, and trade.
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