Fragile Foundations: Assessing the UK’s Economic Slowdown Ahead of the Budget

The Chancellor's upcoming 26 November Budget comes at a moment of unusual economic fragility. Who is behind this story? Well it's Rachel Reeves, the Office for Budget Responsibility, businesses, consumers and economists such as former Bank of England chief economist Andy Haldane. 

What we are seeing is a sharp slowdown in UK growth, with GDP only expanding 0.1% in the third quarter. When this occurred, matters as it came just weeks before the Budget, heightening the political and economic stakes. The effects are being felt across the UK economy, from manufacturing to consumer spending. And why it has happened reflects a combination of structural and immediate pressures: speculation over tax rises, a major production shutdown at Jaguar Land Rover due to a cyber attack, and an atmosphere of fiscal uncertainty that has got households and businesses questioning whether they are better off saving instead of spending or investing. Together, these forces raise a vital question: can this Budget meaningfully revive growth? 

Recent data suggests the challenge is larger than a single manufacturing disruption. While the JLR shutdown dented September's output, Andy Haldane argues that the real drag has been the “circus” of Budget speculation. Businesses and consumers, fearful of looming tax rises, have “hunkered down”, choosing to save rather than spend. This behavioural shift is visible in consumer confidence surveys and business investment intentions, both of which have weakened since early autumn. When firms are not able to predict their future tax liabilities, or whether to expect fiscal tightening, they delay investment - amplifying the growth slowdown.

We are able to see that this pattern aligns with the broader evidence. The UK Economic Policy Uncertainty Index shows persistently high uncertainty since 2016, where we can see a renewed spike in 2025 as Budget rumours intensified. 

Peaks that once appeared only around exceptional events, such as the Brexit referendum or the 2022 mini-budget, have become more common. This matters because uncertainty is not just physiological: it impacts industrial production, tightens financial conditions and weakens the sterling. With the UK economy being in a fragile state, the anticipation of fiscal tightening can be enough to slow activity before any measures are announced. 

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Behind all this lies a deeper structural issue in the UK’s fiscal framework. As Gita Gopinath argues, Britain's habit of reassessing ‘fiscal headroom’ every six months creates excessive policy volatility. It is said that the twice-yearly budget-style events, shaped by the long-range OBR projections, generate a stop-start cycle that markets and firms struggle to navigate. Most advanced economies review fiscal rules annually; the UK, by contrast, updates its plans so frequently that it fuels uncertainty. Research cited by Gopinath suggests that moving to a single annual Budget could raise industrial production by 0.3% a year - it's not transformational on its own, but is meaningful in a low-growth environment. 

Alongside uncertainty, the budget must confront the structural weaknesses that are weighing on growth. Since the financial crisis, we are able to see that productivity growth has slowed significantly. Business investment remains subdued due to global headwinds, political caution and tight fiscal rules. According to analysis from the LSE, the Government faces a £20-20 billion gap in the public finances, exacerbated by weak productivity forecasts, failed welfare reforms and rising social pressures. Now Reeves is pulled between markets demanding credibility, businesses calling for a pro-enterprise policy, andLabour MPs urging relief for households.

Yet, as the LSE’s growth-first framework argues, growth must become the organising principle of economic policy. This means targeted tax reform: extending full expensing to encourage investment, modernising property taxes to improve labour mobility and removing inefficient corporate reliefs. It also means maintaining labour market flexibility while creating high-skill immigration routes. Reforms to planning - enabling faster approvals, zoning clarity and AI growth zones - would further support private-sector expansion 

However, even the boldest pro-growth package could be blunted if fiscal uncertainty persists. THe UK cannot rely on bursts of confidence when what it needs is consistency. Reducing the number of fiscal events, clarifying the medium-term tax path and limiting speculative leaks would all strengthen the foundations on which businesses can make investment decisions. 

In conclusion, the budget is not a silver bullet. But by restoring confidence, reducing volatility and prioritising growth, the government has a chance to shift the economy onto firmer ground. The real test is whether fiscal policy can provide clarity and stability - conditions essential not for stronger growth today, but for the credibility needed to sustain it tomorrow.