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As the final quarter of 2025 approaches, the latest Reuters poll reveals a cautiously optimistic outlook for the United Kingdom’s economic trajectory. With GDP growth nudging upward, the Bank of England (BoE) preparing for a significant bond reduction, and a likely interest rate cut on the horizon, the macroeconomic landscape is shifting in measured steps.
Key highlights at a glance
- UK GDP growth forecast revised upward to 1.3% for 2025
- BoE expected to reduce bond holdings by £67.5 billion over the next fiscal year
- A single 25 basis point rate cut anticipated in Q4 2025, bringing Bank Rate to 3.75%
Economic growth outlook
The UK economy is projected to grow at an average rate of 1.3% in 2025, a modest upgrade from the 1.1% forecast in August. This upward revision reflects stronger-than-expected performance in the first half of the year, buoyed by resilient public spending and a temporary boost in exports ahead of global tariff changes. However, the 2026 forecast remains unchanged at 1.2%, signaling tempered expectations amid persistent inflation and global uncertainties.
1. The services sector continues to be the backbone of growth, with marginal monthly gains offsetting declines in manufacturing output
2. Business investment remains subdued, with firms cautious amid rising labour costs and fiscal policy ambiguity
3. Export performance is expected to improve slightly, though trade frictions and geopolitical tensions remain a drag
Monetary policy and interest rates
The Bank of England is expected to implement one final rate cut for 2025, trimming the Bank Rate by 25 basis points to 3.75% in the fourth quarter. This move is supported by 42 of 67 economists surveyed, while 22 anticipate no further change this year. The decision hinges on upcoming inflation and labour market data, with the BoE balancing disinflationary momentum against the risk of persistent price pressures.
1. Inflation is forecast to peak at 4% in September before easing toward the 2% target by mid-2026
2. Wage growth remains elevated but is showing signs of moderation, which could support further easing
3. The BoE’s Monetary Policy Committee remains divided, with potential for split votes reflecting the complexity of the current economic environment
Quantitative tightening
In a significant step toward monetary normalization, the BoE is expected to reduce its bond holdings by £67.5 billion between October 2025 and September 2026. This move marks a continuation of the central bank’s quantitative tightening strategy, aimed at unwinding the massive asset purchases made during the pandemic and financial crisis.
1. The reduction will bring the BoE’s balance sheet closer to pre-crisis levels, enhancing policy flexibility
2. Forecasts from economists ranged between £50 billion and £100 billion, with the median settling at £67.5 billion
3. The pace and scale of bond sales will be closely watched for market impact, particularly on gilt yields and liquidity
Strategic implications
The coordinated approach of modest GDP growth, restrained rate cuts, and aggressive bond unwinding reflects the BoE’s commitment to restoring monetary discipline without derailing recovery. Policymakers are navigating a delicate balance: supporting growth while anchoring inflation expectations and preparing for fiscal headwinds.
1. Fiscal policy remains a wildcard, with potential tax hikes and spending adjustments looming in the Autumn Budget
2. Labour market softness and consumer sentiment will be key indicators for future monetary decisions
3. The BoE’s actions signal confidence in the economy’s resilience, but also caution against complacency
Conclusion
The UK’s economic narrative for 2025 is one of cautious optimism. Growth is steady, inflation is being tamed, and the BoE is recalibrating its tools with precision. As the year closes, all eyes will be on the November policy meeting and the Chancellor’s budget statement, both of which could redefine the contours of 2026.
Sources: Reuters, Bank of England, CNBC TV18, British Chambers of Commerce, KPMG UK
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