The British economy continues to face a period of severe challenges, as persistent inflationary pressures, a prolonged retail recession, the impact of trade tariffs, and structural problems in the British agri-food sector create a complex, fragile, and uncertain economic environment.
According to the National Statistics Office, the annual Consumer Price Index in September remained unchanged for the third consecutive month at 3.8%, defying forecasts from both the Bank of England and the markets, which expected an increase to around 4%. However, the British Chancellor of the Exchequer, Rachel Reeves, stated that she is not satisfied with inflation remaining at high levels and pledged to implement targeted measures to reduce the cost of living.
In particular, rising transportation prices—especially in fuel and air fares—continued to exert upward pressure, though this was offset by a slowdown in food and recreation services prices, such as concerts and entertainment. Food prices recorded a monthly decrease of 0.2%, the first since May 2024, while annual food inflation fell from 5.1% to 4.5% (olive oil prices dropped by 15.4% and bread by 6.2%). Significant increases were recorded in beef prices (+26.9%), chocolate (+18.1%), and coffee (+13.4%). Core inflation declined slightly to 3.5%.
Despite this positive sign, analysts doubt a rate cut in the upcoming Bank of England meeting on November 6. It is noted that the United Kingdom continues to have the highest inflation among G7 countries, with the OECD projecting an average rate of 3.5% for the current year.
According to recent data from the National Statistics Office, the British economy grew marginally by 0.1% in August. On a quarterly basis (June–August), GDP rose by 0.3%, a slight increase from 0.2% in the second quarter, though significantly lower than 0.7% in the first quarter of 2025. Specifically, the production sector increased by 0.4%, the services sector remained stagnant, and construction declined by 0.3%.
Fragile situation in the labor market
Unemployment in the third quarter reached 4.8%, the highest level in the past four years. The reduction in job vacancies and wages, combined with an increase in benefit applications, is heightening concerns about the fragile state of the labor market.
At the same time, the British steel industry is facing its most severe crisis in years, as the 50% tariffs announced by the EU on British steel threaten around 80,000 jobs and jeopardize the sustainability of the entire supply chain. It should be noted that the UK exported 1.9 million tons of steel to the EU in 2024, most of which had been duty-free under quota agreements with Brussels.
The retail crisis
The crisis in the retail sector has reached alarming proportions. Sales have been declining for 12 consecutive months, marking the worst performance since 2009. Consumer uncertainty about economic conditions, the rise in the minimum wage, the increase in employer contributions, and the potential announcement of new tax burdens—combined with inflation and high raw material prices—have kept demand at subdued levels.
Major retail chains such as Poundland, Sports Direct, and Trespass have announced store closures, while companies like Direct Furnishing Supplies (DFS) and Starbucks are considering restructuring their networks. According to forecasts by the Centre for Retail Research, by the end of 2025, more than 17,000 stores are expected to cease operations, resulting in a loss of approximately 201,953 jobs. Meanwhile, M&S CEO Stuart Machin noted that additional tax and regulatory obligations have cost the retail sector £7 billion and around 100,000 jobs, describing the rise in National Insurance contributions as “catastrophic.”
The impact on British exports from U.S. tariff policy
U.S. tariff policy has caused significant disruptions in international trade, particularly affecting the British export sector. A notable example is Fortnum & Mason, the historic British premium goods company, which has seen a major drop in U.S. sales due to stricter origin rules and the removal of the “de minimis” exemption for shipments under $800. Before these new restrictions, Fortnum & Mason’s international sales reached £12.5 million, accounting for 5.5% of its total turnover.
Furthermore, according to a Bank of England study, the implementation of the net-zero policy and the taxation of CO? emissions are expected to reduce production, increase energy costs for households and businesses, and keep inflation at high levels, potentially until 2028.
(*) Information provided by the Office of Economic and Commercial Affairs in London.
