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Economy update for UK and US readers: the latest on growth, inflation, jobs, and what to watch next.
“Economy” is shorthand for how much a country produces, what people earn, and how prices and jobs change over time. In the United States, the latest official GDP release put third-quarter 2025 growth at a 4.3% annual rate, with consumer spending and exports helping to offset softer investment, according to the Bureau of Economic Analysis.
That is a useful reminder for UK and US readers: one data point rarely settles the story. Growth, inflation, and interest rates can move in different directions, and the lived experience depends on wages, housing costs, and job security.
Economy basics
GDP describes output, but it is not the same as living standards. Inflation measures how fast prices change, often via CPI, while in the US the PCE measure is also closely watched because it is designed to reflect shifting consumer behaviour.
Interest rates link the two. When inflation runs hot, central banks tighten policy, raising borrowing costs and usually cooling demand with a lag. When inflation falls, rates may eventually ease, but only once policymakers are confident the trend will last.
Growth signals
In late 2025, the broad picture looks uneven. The US has posted stronger spurts of growth than many expected in a higher-rate environment, supported by consumer spending and, at times, net trade. The risk is that a quarter boosted by specific factors can fade if households retrench or if businesses keep delaying capital spending.
The UK has struggled to build consistent momentum, with growth often hovering near zero and sectors moving in different directions. In a flat-output backdrop, small shifts in confidence or financial conditions can matter more.
One caution on both sides of the Atlantic is that GDP is revised, sometimes materially, as more surveys and tax data arrive. Month-to-month data can also be noisy. The best signal is when multiple releases tell the same story, such as output, consumer spending, and business confidence moving together for several months.
Inflation and CPI
Inflation is the rate of price change; the cost of living is the level of prices people must pay. Even when inflation slows, households do not get relief on past price rises, so sentiment can lag behind improving data.
The mix matters too. Services inflation often tracks wages and rents, while goods inflation can cool faster when supply constraints ease. For both the UK and US, housing and energy costs can dominate budgets, so headline inflation does not always match what people feel week to week.
Rates and borrowing
Higher interest rates rewrite household and business calculations. Mortgage repricing, credit-card APRs, and corporate refinancing needs can tighten financial conditions even if the policy rate is unchanged.
Watch borrowing costs relative to incomes. If wage growth holds up and inflation stays calmer, the economy can absorb high rates more easily. If job security weakens, the same level of rates can become restrictive quickly.
Jobs and wages
Unemployment is often the last indicator to turn decisively, but it shapes confidence most directly. A gentle cooling in hiring can ease wage pressure without a sharp rise in joblessness. A more abrupt shift tends to hit consumer spending first and can spread through business revenues.
Wages are the bridge between macro data and daily life. Strong nominal pay growth does not always feel like progress if prices are still rising, but when inflation cools, wage gains can translate into real income growth.
Consumer spending
Consumers are the engine of both economies, but the fuel is real purchasing power. In the US, consumer spending has supported growth, yet durability depends on whether households can keep spending without leaning too heavily on credit. In the UK, spending tends to be more sensitive to energy bills, housing costs, and swings in confidence.
Recent UK output data has highlighted how thin the margin can be. The Office for National Statistics reported GDP falling 0.1% in October 2025 and also down 0.1% over the three months to October, a reminder that small monthly moves can add up to a subdued trend.
For businesses, the spending question is about mix. When budgets are tight, households often prioritise essentials and reduce big-ticket purchases, which can hit discretionary sectors harder.
Housing affordability
Housing affordability remains central to the cost of living debate. Higher mortgage rates raise monthly payments for new buyers and can reduce transaction volumes, while tight supply can keep prices and rents stubborn.
Housing feeds back into confidence and mobility. When people cannot afford to move, they may delay job changes or household formation, influencing labour supply and local demand.
Investment and trade
Business investment is a forward-looking signal: firms invest when they expect demand to hold up and financing to be manageable. When investment slows, productivity gains can soften, limiting future wage growth. In both the UK and US, uncertainty around global demand, supply chains, and tariffs has complicated planning.
Trade can amplify these effects. Export strength can lift GDP, while tariffs can shift costs and sourcing decisions. The impact is rarely uniform, which is why national headlines can feel disconnected from local realities.
What to watch
Going into 2026, the most useful checkpoints are whether inflation trends stay calmer, whether borrowing costs ease in practice, and whether unemployment remains contained. Keep an eye on consumer spending versus consumer confidence, because spending can hold up until it suddenly doesn’t.
Also watch business investment and housing. When firms start spending on capacity again, that tends to support longer-run wage growth. When housing affordability improves, confidence usually follows.
Conclusion
For UK and US readers, late 2025 is best understood as cross-currents rather than a single narrative. US growth has been stronger at times, while UK activity has been closer to flat, and both economies are still adjusting to higher interest rates. Inflation may be slower than earlier peaks, but the cost of living remains high in levels, especially where housing is tight. The next big signal is whether real wages keep improving without unemployment rising.
What is the economy in simple terms?
The economy is how a country produces goods and services, pays wages, sets prices, and creates jobs, captured through indicators like GDP, inflation, and unemployment.
What does GDP actually tell you?
GDP measures total output over a period; it can show whether activity is expanding or shrinking, but it does not fully capture household living standards or inequality.
Why do CPI and PCE both matter in the US?
CPI is a widely cited inflation gauge, while PCE is often used for policy analysis because it can reflect changes in what people buy as prices shift.
How do interest rates affect everyday households?
Higher rates usually raise mortgage and loan costs and can slow spending; lower rates ease borrowing, but often only after inflation is under better control.
What should I watch to know if the economy is weakening?
A broad slowdown often shows up in softer consumer spending, weaker business investment, falling confidence, and a rise in unemployment rather than in GDP alone.
Why does the economy feel bad even when inflation is falling?
Inflation falling means prices are rising more slowly, not that prices are falling; if wages and housing affordability lag, the cost of living can still feel tight.