From Inflation to the Autumn Budget: Key Economic Trends for the UK

Recent economic trends and what this could mean for you

It’s been a turbulent time for the UK economy, with inflation, Gross Domestic Product (GDP), and tax policy dominating headlines. As we move towards the end of summer, attention turns to the Autumn Budget, a key moment that will shape the government’s fiscal strategy going forwards and could impact personal finances. Here, we break down recent developments, explore what might be coming next, and consider how these changes could affect your financial plan.

Monetary policy moves: how interest rates and inflation can impact your financial plan

Inflation has eased significantly in the UK since its 2022 peak of over 11%, but pressures remain. In July, the Consumer Price Index (CPI) rose to 3.8%, with food inflation reaching 4.9%¹. While this is a marked improvement, it’s still above the Bank of England’s 2% target.

In response, the Bank of England (BoE) has cut interest rates for the fifth time since last summer, bringing the base rate down to 4%². This gradual loosening of monetary policy reflects growing confidence that inflation is on a downward path. Lower interest rates can help ease mortgage costs, support business investment, and stimulate consumer spending, all positive signs for the broader economy.

However, the Monetary Policy Committee (those in charge of setting the BoE’s interest rate) has cautioned that future rate cuts will depend on how inflationary pressures evolve, particularly in wages and services. This environment presents both challenges and opportunities for your financial plan. While lower rates may reduce borrowing costs and boost investment markets, persistent inflation may still erode purchasing power and affect real returns.

David Murray, Head of Aberdeen Financial Planning, explains:

“Rising inflation eats away at your money in real terms, so if you’re able to save or invest, it’s vital to check your finances are pulling their weight. That might mean moving cash into a better savings rate, reviewing your ISA options, or making use of pension tax reliefs… It can be a minefield for someone just starting out on their savings journey, so getting support from a financial adviser can help you make confident, informed decisions.”

If you are concerned or want to review your own position, taking expert advice and speaking with your financial planner can help to ensure that your investment strategy continues to be aligned with your overall financial goals.

GDP growth surprises amidst global challenges

Defying forecasts, the economy grew by 0.3% during the three months to the end of June. This was ahead of expectations of a more sluggish 0.1% growth . Rachel Reeves stated that whilst this was positive, there was “more to do to deliver an economy that works for working people”³.

And whilst GDP came in ahead of expectations, it is still below the 1% GDP growth that the Office for Budget Responsibility (OBR) had forecast for 2025⁴. Several factors are weighing on growth: global trade uncertainty, higher business costs, and a softening labour market.

While challenges remain, the resilience shown in recent growth figures is encouraging. The UK remains one of the fastest growing developed markets. Sectors such as technology, services, and green energy have continued to expand, offering pockets of opportunity. Consumer spending has also held up better than expected, suggesting there may be some underlying confidence in the economy.

Autumn budget, fiscal headroom and policy choices

As we look ahead to the Autumn Budget, one recurring theme is the limited fiscal headroom available to the government. This headroom reflects the gap between forecast government revenue (primarily from taxes), and forecast spending on public services, welfare, and debt interest.

These forecasts are shaped by current tax legislation, spending plans, and economic growth projections from the Office for Budget Responsibility (OBR), an independent body that assesses the UK’s economic outlook and public finances. The Chancellor relies on these forecasts to determine what is affordable under the government’s fiscal “stability rule”: that spending must not exceed revenue.

The current fiscal headroom is narrow, sitting at just £9.9bn4. Looking at that in historic context paints a clearer picture of how narrow this gap is:

Source: Aberdeen, Office for Budget Responsibility, August 2025.

With recent policy decisions starting to take effect and political resistance to further spending cuts, the government risks breaching its own fiscal rule. Growth has so far fallen short of expectations, and it seems increasingly likely that the OBR will revise its forecasts downward. Lowering the growth forecast means lower projected revenues, which would erode fiscal headroom.

All eyes will be on the Autumn Budget. If the government is in the red, it will need to adjust either its spending plans or tax policy to stay within its rules. However, its commitment not to raise taxes on working people, and its continued resistance to increasing VAT, National Insurance, or corporation tax, limits its options. We may see tweaks to smaller taxes to make up the headroom. Another option the government has is to revise its fiscal rules, something bodies like the OECD have encouraged. Either way, the government is likely to face some difficult decisions.

Staying steady in uncertain times

The UK’s economic landscape remains in a state of flux. Inflation is proving sticky, growth is not where we might like it to be, and fiscal headroom is narrowing. With limited room to manoeuvre, the government faces tough choices in the Autumn Budget, whether to adjust spending, reform taxes, or revisit its fiscal rules.

For your financial plan, staying informed and remaining calm are critical during more volatile periods. Changes to tax policy or public spending could have implications for income, investments, and long-term goals. However, this doesn’t mean you should panic. Taking action now could have long term implications and might not deliver the results you want. Your financial planner is here to help you navigate any challenges and can help you adjust your strategy if needed. Now may be a good moment to have a conversation with them about how to best tackle any uncertainty.

It’s also worth remembering that economic cycles are natural, and periods of volatility often give way to recovery and growth. Staying the course and continuing to focus on the long term picture have often proven to be the best course of action.

This article should not be regarded as financial advice. The value of your investments can go down as well as up and you may get back less than you paid in. Information is based on our understanding in September 2025. Investment growth isn’t guaranteed and it’s possible that you could get back less than you paid in. Tax treatment depends on your individual circumstances and may be subject to change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment. Aberdeen is not responsible for the information, accuracy and views of external sources.