WeeklyWatch – Disappointing digits for the UK economy

7th October 2025

Stock Take

All adding up, and not for the better for the UK

There’s less than two months to go until the Autumn Budget is revealed, and the economic news of last week will not have made for happy listening for Chancellor Rachel Reeves.

The Office for National Statistics (ONS) revealed on Tuesday that in the second quarter, the UK economy only grew by 0.3% – a big drop from 0.7% in the quarter preceding it. They believe that the slowdown could be partly the result of initiatives being brought forward to February and March, just prior to the stamp duty changes in April. And ‘to some extent’, the US tariffs might have played their part too.

Unfortunately, the negative numbers didn’t end there. On Friday, reports came to light that revealed a warning from the Office for Budget Responsibility (OBR) to the Chancellor that the economic outlook for the UK is actually much worse than initially thought in its March update.

The reasoning behind the OBR’s downgrade was largely due to lower than forecast productivity. And this doesn’t bode well for public finances; it has the potential to create a hole to the tune of £15–£20 billion.

Reeves had given herself just under £10 billion in fiscal headroom, but, as this was based on older productivity forecasts, the new numbers will likely erase the headroom entirely.

Budget recalculation

A shortfall like this will leave Reeves scratching her head as she plans and prepares the annual Budget which is due to be announced on 26th November. The UK’s national debt/GDP ratio is nearly 100% – further borrowing could cause gilt yields to rise. On the other hand, her ability to raise new taxes without facing fierce political backlash is very limited. Additionally, new taxes could negatively impact the already slow economic growth.

Slow productivity growth isn’t a new issue for the current Chancellor, it’s a key issue that’s haunted successive UK governments since the Great Financial Crisis (GFC) nearly 20 years ago. The UK’s domestic productivity is below 2022 levels and economic growth since the GFC has been significantly slower compared to the years leading up to it.

The OBR’s overestimation of productivity growth and underestimation of government borrowing requirements have also been unhelpful in allowing the Chancellor to balance the books.

Although the domestic economic outlook is bleak, the FTSE 100 has enjoyed success, reaching record territory last week. Against such a weak economic backdrop, the contradiction may seem strange. The Equity Strategist at St. James’s Place, Carlota Estragues Lopez, says:

“It’s partly thanks to the Bank of England’s rate cuts back in August, and the belief that further cuts are likely in the future. There is also evidence that some of the largest companies in the UK are starting to adopt AI in more meaningful ways. A third driver is the effects of the increased level of stock buybacks we’ve seen in the market over the last few years coming through.”

Shutdown for the US government

Well, it happened! Despite commentary that federal shutdown threats are common but rarely occur… After the Senate failed to pass a spending bill that allowed federal offices to remain open, the US federal government did indeed shut down some of its services last week, with some workers being let go.

Past shutdowns have lasted, on average, for about a week. However, during President Trump’s first term, one lasted over a month.

Historically, shutdowns haven’t had too much of a negative effect on US GDP or stock market returns. On Thursday, the S&P 500 reached another record high, the day after the shutdown happened. It suggests that investors aren’t worried about the lockdown’s impact at the moment.

However, one of the ways in which the shutdown could have an impact is by delaying the release of data from the Bureau of Labor Statistics, which is used by the Federal Reserve to determine what happens with US interest rates. On Wednesday, the independent payroll company ADP released its private sector jobs data. It revealed that in September, US private-sector businesses lost 32,000 jobs, fuelling concerns that the US economy is slowing down.

Government woes for France

It feels like a never-ending cycle of political turmoil for the French. Yesterday morning (6th October), less than a day after unveiling his new cabinet, and having been in charge for less than a month, the French Prime Minister, Sébastien Lecornu, unexpectedly resigned.

France has now had five prime ministers in under two years, and Lecornu’s resignation places immense pressure back on the French President, Emmanuel Macron, who may call new parliamentary elections or even choose to personally stand down.

As a result of the news, French stocks and the euro fell.

Market summary

Markets across the globe had a strong week, performing well despite bullish sentiment regarding potential US interest rate cuts.

By Friday, the S&P 500 had achieved a record close. Expensive growth companies outperformed value style companies as investors remained calm in light of the federal government shutdown. These kinds of disruptions haven’t been too problematic for market returns in years gone by. In the year to date, the tech-heavy NASDAQ index has risen 18% in US dollar terms, more than the S&P 500 at 14.2%. There was a rise in US Treasury prices, and a fall in yields (which move in the opposite direction).

In local currency terms, the FTSE 100 closed just a few points below its all-time intra-day high. There were also record highs for the European STOXX 600 index. Gold prices rose for a seventh consecutive week. This year, metal is up 46% in US dollars. Contrasting this were oil prices, which were noticeably lower over the period with concern that the OPEC+ cartel is planning to increase its daily output.

Wealth Check 

How do I protect my estate? 5 ways to reduce Inheritance Tax (IHT)

Death is never an easy conversation, and IHT is intrinsically linked with the topic. But talking about finances and IHT is becoming more common, and rightly so.

In last year’s Autumn Budget it was announced that, from 2027, unspent pension pots would be included as part of an estate and could be liable for up to 40% IHT on amounts above available allowances. And that’s not all… Nil rate bands and residence nil rate bands will remain frozen until 2030, meaning that more people could find themselves with IHT woes. All of which comes about as inherited wealth is at an all-time high…

Over the next 30 years or so, ‘baby boomers’ (people born between 1946 and 1964) are expected to leave behind an unprecedented figure of £7 trillion to Gen Z and millennials.1 Already, this is being labelled as the greatest wealth transfer in history – but many will face the unwelcome IHT bill alongside it. Having said this, there are ways in which you can plan to mitigate this through practical and timely estate planning to help those you love.

What can I do to reduce the IHT bill on my estate?

There are many things you can do now to help IHT charges:

  1. Regularly gift using your gifting allowance
  2. Leave a larger gift – to a charity or leave a legacy
  3. Put aside larger assets in a discretionary trust
  4. Set up a whole of life insurance policy written in trust
  5. Review your Wills to make sure that they’re as tax-efficient as possible

If you’re not sure how or where to start, this is where financial advice can be extremely valuable. At Wellesley, our expert advisers will help you create a fair, sustainable plan to help keep money exactly where it should be: with your loved ones.

Did you know that one in five adults said that financial advice enabled them to leave a better inheritance for their children? These were the findings from St. James’s Place’s recent consumer survey, The Real Life Advice Report.2

The more conversations that happen about money in general, not just inheritance, the more we understand each other’s hopes, ambitions and dreams. Contact Wellesley today to start your journey to better financial health.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place and along with Trusts are not regulated by the Financial Conduct Authority.

Sources: 

1Unbiased: the Great Wealth Transfer (22nd July 2025)
2The Real Life Advice Report was commissioned by St. James’s Place. Opinium surveyed just under 12,000 UK adults nationwide in two polls between May and August 2024. Quotas and post-weighting were applied to the sample to make the dataset representative of the UK adult population. Quantitative data referenced is sourced from the first poll which had a total sample of 7,995 respondents. Survey included those aged 18–34 (1,940), aged 35–54 (2,654) and aged 55 and over (3,401).

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