UK consumers feel the pinch from tax increases as economy slows

British households saved less in the July-to-September period of this year as they felt the hit from higher taxes but still increased their spending, according to official data which confirmed a slowdown in the broader economy.

Gross domestic product grew by only 0.1%, the Office for National Statistics said, in line with its initial estimate and forecasts by economists polled by Reuters.

Growth in the April-to-June period was revised down to 0.2% from a previous estimate of 0.3%.

The ONS said the saving ratio dropped by 0.7 percentage points to 9.5%, its lowest in over a year, as real household disposable incomes took a hit from tax increases which outweighed income growth and from inflation.

But household consumption grew by 0.3% from the second quarter when it showed no growth. It was the fastest quarter-on-quarter increase in a year.

Finance minister Rachel Reeves increased taxes in her first budget in 2024, including on some forms of wealth income, although most of the burden fell on employers rather than individuals.

Britain grew by the most among Group of Seven large advanced economies in the first half of 2025, alongside Japan, but it has slowed sharply since then, in part due to months of uncertainty about possible tax increases in Reeves’ second budget which she announced on November 26.

Last week the Bank of England said it expected zero GDP growth in the October-to-December period but it thought that the underlying pace of economic growth was around 0.2% per quarter.

“The breakdown in growth in Q3 was a bit less reliant on government spending than in the first estimate,” Alex Kerr, UK economist at Capital Economics, said.

However, the overall data confirmed the slowdown in the economy after its strong start to 2025 and Capital expected only 1.0% growth next year, down from 1.4% this year, Kerr said.

Monday’s data showed that Britain’s GDP in the third quarter was 1.3% higher than a year ago – unchanged from the ONS’s initial estimate – while on a per capita basis, output was 0.9% higher than the year before.

Britain’s current account deficit in the three months to the end of September totalled 12.1 billion pounds, compared with a Reuters poll forecast of 21.1 billion pounds and equivalent to 1.6% of GDP, less than 2.8% in the second quarter.

The ONS said revisions to its data meant income flowing into Britain from foreign direct investment held abroad had been higher than previously thought while earnings in Britain by foreign investors were revised down.