Weekly Briefing: GDP Growth Stalls, BoE Rates Decision, Jobs Market Continues Slide, London Property Prices

This week’s data paints the picture of an economy in transition, as policy uncertainty, weaker demand, and a softening labour market feed into decision-making. Output figures surprised on the downside, while the Bank of England moved to cut rates again, albeit cautiously. At the same time, rising unemployment and housing markets are reacting unevenly, with sharp falls in parts of London offset by growth elsewhere.

Read on for the full context.

Economic growth faltered ahead of the Budget

Britain’s economy unexpectedly shrank again in October, extending a run of stagnation that has now lasted four months. Figures from the Office for National Statistics showed GDP fell by 0.1%, following a similar decline in September, against expectations of modest growth.

The ONS pointed to a broad-based slowdown driven by caution among households and businesses ahead of Rachel Reeves’s tax-raising budget. Output in the services sector, which dominates the UK economy, fell by 0.3%, making it the largest single contributor to the overall decline.

Weakness was most visible in retail spending and car sales, alongside a sharp drop in computer programming and consultancy activity. Construction output also fell by 0.6%, reflecting delayed projects and subdued confidence, while manufacturers reported customers holding back decisions until greater policy clarity emerged.

Although the production sector rose by 1.1%, this recovery was weaker than hoped following the cyber-attack that halted Jaguar Land Rover’s UK operations earlier in the autumn. The ONS said car industry output rebounded by 9.5% in October but remained 21.8% below August levels, underlining the lasting impact on supply chains.

Economists said the latest figures strengthened the case for looser monetary policy as inflationary pressures fade and unemployment rises. Over the three months to October, GDP also fell by 0.1%, increasing the risk of a contraction in the final quarter of the year.

Andrew Wishart of Berenberg summed up the shift in tone: “The UK economy has faltered more dramatically than we expected. This loss of momentum will bring inflation down more swiftly than we previously anticipated, allowing the BoE to act.”

Bank of England cuts rates, but signals caution

The Bank of England responded to the weakening backdrop by cutting interest rates by a quarter point to 3.75%, marking its sixth reduction since the summer of 2024. The decision followed mounting evidence of slowing growth and cooling inflation, but policymakers stressed that future cuts were far from guaranteed.

The Monetary Policy Committee voted five to four in favour of the cut, highlighting persistent divisions over the balance between supporting growth and preventing inflation from becoming entrenched. The Bank now expects inflation to fall close to its 2% target in the second quarter of 2026.

Governor Andrew Bailey said there was scope for “some additional policy easing” but emphasised that each decision would become more finely balanced. Inflation has fallen more quickly than expected, but forward-looking wage indicators remain elevated, with agents predicting pay settlements of around 3.5% in 2026.

Markets had largely priced in the move, though some investors were surprised by the Bank’s measured tone after recent soft inflation and labour market data. The pound strengthened modestly following the announcement, while two-year gilt yields edged higher as traders reassessed the likely pace of further cuts.

The Bank also noted that measures announced in last month’s Budget, including relief on energy bills and fuel duty, could reduce headline inflation by around half a percentage point next year. This echoed the caution seen in the growth data discussed earlier, where policy uncertainty weighed heavily on sentiment.

Bailey underlined the limits of forward guidance: “While I see scope for some additional policy easing, the path for Bank Rate cannot be prejudged with precision, recognising in part the more limited space as Bank Rate approaches a neutral level.”

Labour market weakens as unemployment rises

Signs of strain in the labour market intensified ahead of the Budget, reinforcing the case for the Bank’s latest rate cut. The ONS reported that unemployment rose to 5.1% in the three months to October, the highest rate since early 2016 outside the pandemic period.

Payroll employment fell by 38,000 in November, the largest monthly drop in five years, taking the total number of employees to 30.3 million. The claimant count also increased to 1.696 million, indicating that lay-offs, not just reduced hiring, are contributing to rising joblessness.

Wage growth continued to cool, with regular pay excluding bonuses slowing to 4.6%, its lowest level since early 2022. Private sector pay growth fell to 3.9%, while public sector figures were distorted by delayed pay awards agreed when inflation was much higher.

Economists said the data showed a labour market responding quickly to weaker demand and prolonged uncertainty. Younger workers have been particularly affected, with the ONS highlighting a tougher hiring climate for those entering the workforce.

Business groups echoed these concerns, pointing to rising employment costs and forthcoming regulation as reasons for retrenchment. The British Chambers of Commerce said firms were increasingly hesitant to add staff amid what they described as a tidal wave of new legislation.

Suren Thiru of the ICAEW described the picture bluntly: “The concerning pace at which the labour market is unravelling means that an interest rate cut looks inevitable as these figures will undoubtedly aggravate concerns over the strength of economic conditions.”

London house prices slide as regional divides narrow

The housing market reflected many of the same themes of caution and uneven momentum, with sharp price falls in London following the Budget. New data from Purplebricks showed average property values in the capital fell by 1.9% between September and October, wiping £10,541 off the typical home.

Losses were particularly severe in high-value boroughs, where annual declines ran into six figures. Homes in Kensington and Chelsea fell by nearly £57,000 in a month and more than £236,000 over the year, even as average prices remained close to £1.2m.

The City of London recorded the steepest monthly drop in cash terms, while Westminster also saw substantial annual losses. In total, values fell in 19 of London’s 33 boroughs, highlighting the scale of the adjustment at the top end of the market.

Outside the capital, the picture was more mixed. Prices slipped modestly in the South West and Scotland, but rose strongly in the North East, where average values increased by 1.3% over the month.

Despite these localised falls, UK house prices were still up 1.7% over the year to October, taking the national average to around £270,000. Rural and less overheated areas, including parts of Scotland and Oxfordshire, recorded some of the strongest annual gains.

Tom Evans of Purplebricks said: “While these monthly falls are not the outcome homeowners will have wanted to see, a softening in house prices at this stage of the year is not unusual… it’s important to recognise that overall, 2025 has been a resilient year for the housing market.”

Final Note

Taken together, this week’s stories point to an economy continuously adjusting to slower growth, tighter confidence, and the after-effects of prolonged uncertainty. Policymakers are beginning to respond, but with clear limits on how far and how fast they are willing to go. The direction of travel is becoming clearer, even if the path ahead remains narrow and uneven.