Table of Contents
Introduction
The Autumn Budget 2025 lands at a moment when the UK’s economic narrative is almost schizophrenic. Britain is set to be one of the fastest-growing G7 economies in 2025, according to IMF forecasts. But GDP per head has barely nudged forward—only a 0.9% rise in the year to Q2 2025—leaving households wondering why growth is failing to reach their wallets.
This gap between national statistics and lived experience is precisely where cost of living and Labour values collide. The government is celebrating recovery. However, families continue to cut back. They juggle bills. They also question whether the economic system still works for them.
This Budget may therefore be less about arithmetic. It might be more about credibility. Does Labour genuinely grasp that growth means nothing unless it improves people’s lives?
Growth Without Gain: A Recovery That Doesn’t Feel Like One
The UK economy in Q2 2025 stood 5.2% above its pre-pandemic level, a respectable figure by G7 standards. Yet the character of this growth matters. Much of it reflects post-pandemic rebound and sectoral catch-up, rather than a transformation in productivity or business dynamism.
And signs of fading momentum are unmistakable. After a strong early-year performance, GDP fell 0.1% in September, following a flat August. It is difficult to interpret this as anything but a warning: Britain’s growth spurt may already be running out of steam just as the country heads into the crucial winter period.
Ministers who claim Britain has “turned a corner” risk repeating the mistakes of previous governments that mistook temporary momentum for structural renewal. A mature reading of the data suggests the opposite: the UK is recovering, but not renewing.
Productivity, Investment and the Long-Term Gap
No advanced economy can thrive when investment stagnates. The UK’s whole-economy investment reached 19.3% of GDP in Q2 2025, up marginally but still the second-lowest in the G7. In 24 of the past 30 years, Britain has ranked bottom. Productivity tells the same story: only 7% growth over the past decade, the second-weakest among G7 peers.
This is not a cyclical weakness. It is a structural failing, and the price is paid in lower wages, weaker public services, and diminished competitiveness. If the UK continues to rely on a low-investment model, it will condemn itself to the economic equivalent of jogging on a treadmill—moving vigorously, going nowhere.
Brexit remains part of the problem. Estimates suggesting it has reduced UK GDP by 6–8% and cut exports by 6–7% are not marginal footnotes. They represent a profound shift in Britain’s external competitiveness.
Inflation, Rates and the Cost-of-Living Reality
IMF forecasts show the UK will have the highest inflation in the G7 in both 2025 (3.4%) and 2026 (2.5%). This matters because inflation is no longer a story of global shocks; it is increasingly domestic, driven by services and wage pressures. With interest rates expected to stay near 4% until 2026, mortgage-holders face prolonged pain, and businesses considering investment face a persistent headwind.
Britain risks drifting into a mild but stubborn “stagflation-lite” era—neither dynamic enough to grow confidently, nor stable enough to ease pressure on households. The danger is complacency: accepting sluggishness as the new normal.
Labour Market Pressures and Living Standards
Unemployment at 5% (July–September 2025) is notably higher than earlier projections, while real wages have only recently begun to rise faster than inflation. Even with strong headline growth, the public mood feels darker. Why? Because GDP per head remains weak, and public services—NHS, councils, transport—struggle with chronic shortages.
The real cost-of-living crisis today is not only about prices but about a breakdown in the social contract. People no longer expect their living standards to improve; they hope only that they do not fall further.
External Sector Strains, Brexit and Openness
Britain’s current account deficit widened to 3.8% of GDP in Q2 2025, leaving the country reliant on foreign capital inflows. Goods exports to the EU remain below 2019 levels, and food and drink exports have fallen by roughly one-third since Brexit. Services trade remains a strength, yet even here exports are estimated to be 4–5% below where they would have been without Brexit-related friction.
The UK’s openness is a double-edged sword. It drives competitiveness in global finance but leaves the country dangerously exposed when trade relationships become politicised.
Fiscal Rules, Debt and the Budget Straitjacket
With public debt projected to peak at around 106% of GDP, fiscal space is painfully tight. The Chancellor has under £10bn of headroom under existing fiscal rules. Labour has promised not to raise income tax, VAT or National Insurance. That leaves only difficult options:
- Wealth and property taxes
- Capital gains reform
- Pension taxation
- Business tax reshaping
The Budget cannot be all things to all people. If Labour avoids honest debate on tax, it will find itself making cuts by stealth—precisely the model it once criticised.
The UK in the G7: Strength or Fragility?
In growth terms, the UK looks respectable—slightly above average. But its inflation is the highest, its investment among the lowest, and its productivity among the weakest. This unusual mix places Britain somewhere between the US (strong growth, high debt) and the euro area (slow growth, high structural constraints). Investors will read the Budget through that lens.
The UK risks being seen as a mid-performer with high volatility: not a disaster, but not a safe bet either. For a country seeking to reposition itself post-Brexit, that is not the reputation it needs.
Strategic Choices for the Autumn Budget 2025
- Immediate relief or long-term renewal?
Short-term support is politically tempting, but inflation remains above target and the IMF has issued explicit warnings. Cash giveaways could prove counterproductive. - An investment-led national strategy
Given decades of underperformance, Britain requires a multi-year investment framework, not a patchwork of incentives. Stability is as important as generosity. - A pragmatic shift in Europe
Closer regulatory co-operation need not breach political red lines. A smart Budget can signal intent without reopening the constitutional debate. - Labour values in real time
Labour’s tradition emphasises dignity, fairness and opportunity. That requires more than balancing books. It demands rebuilding capacity: skills, infrastructure and public services that allow the economy to grow with purpose, not merely in size.
Conclusion
As the Autumn Budget approaches, Britain stands at a crossroads. The economy is growing, yet households still feel squeezed. Investment remains too low, inflation too high, and productivity stubbornly weak.
For Labour, this moment is not simply a test of fiscal competence—it is a test of political identity. Cost of living and Labour values cannot be separated. A fair society requires an economy capable of sustaining fairness.
The Budget must therefore choose ambition over drift. If it succeeds, Britain may finally begin closing its long-standing growth gap. If not, the country risks settling into a decade of fragile, uneven progress that no headline statistic can disguise.
Reference
- International Monetary Fund, World Economic Outlook (2025).
- Office for National Statistics, Quarterly National Accounts (Q2 2025).
- Bank of England, Monetary Policy Report (2025).
- HMRC UK Trade Statistics (2024–2025).
- Institute for Government, Brexit and the Economy (2025).
- OECD Economic Outlook (2025).
