UK consumers feel the Pinch from tax Iincreases as economy slows

Monday 22 December 2025 - 12:00

By: Sahili Aya

UK consumers feel the Pinch from tax Iincreases as economy slows

British households are feeling the impact of higher taxes as economic growth slows, according to official data released Monday. From July to September 2025, the household saving ratio fell to 9.5%, the lowest in over a year, as real disposable incomes were squeezed by tax increases that outpaced income growth, along with ongoing inflation.

Despite the drop in savings, household consumption rose 0.3% compared to the previous quarter, marking the fastest quarterly increase in a year. Gross domestic product (GDP) grew only 0.1% in the third quarter, confirming a slowdown after a strong start to the year. The April-to-June growth rate was revised down to 0.2% from an earlier estimate of 0.3%.

Finance Minister Rachel Reeves implemented tax increases in her first budget in 2024, targeting some forms of wealth income, though much of the burden fell on employers rather than individuals. Uncertainty surrounding her second budget, announced on November 26, has contributed to a slowdown in business and consumer activity.

While Britain’s GDP for the third quarter was 1.3% higher than a year ago, per capita output rose just 0.9%. The current account deficit fell to £12.1 billion, equivalent to 1.6% of GDP, down from 2.8% in the previous quarter. Economists warn that growth is likely to remain subdued in 2026, with forecasts around 1.0%, down from 1.4% this year.