UK Economic Slowdown Weighs on Businesses and Households Amid Tax Hikes

The UK economy grew by just 1.4% over the past year, falling short of expectations and highlighting the fragility of the recovery. The services sector, which accounts for 80% of the economy, expanded by a mere 0.1%, while construction saw a slight 0.2% rise. These gains were overshadowed by a 0.9% drop in production and a sharp 1.3% decline in manufacturing—the largest monthly contraction since July 2023.

Higher taxes and the threat of further interest rate hikes are squeezing businesses and households, dampening demand and investment. Chancellor Rachel Reeves faces mounting pressure to address a multibillion-pound fiscal shortfall ahead of the autumn budget. Meanwhile, Prime Minister Keir Starmer’s Labour government is banking on stronger growth to alleviate financial strain, but the outlook remains uncertain as companies defer spending and consumers cut back.