The British economy is navigating a complex financial landscape as 2025 draws to a close, with fresh data and market reactions highlighting both resilience and underlying strain. The Bank of England’s most recent Money and Credit statistics, released for August, show that UK households and markets are adjusting to a cocktail of elevated borrowing costs, persistent inflation, and political uncertainty.
Gross mortgage lending in the UK dipped to £22.7 billion in August, while repayments climbed to £20 billion. Financial planners and market analysts see this as a sign that refinancing pressures are mounting, with many households feeling the squeeze. Ian Futcher, a financial planner at Quilter, told The Financial Times, “The Bank of England’s latest Money and Credit figures highlight the continued pressures on the housing market. The residual effects of stamp duty changes, combined with ongoing affordability issues and the typical summer slowdown, are still dampening activity.”
Net borrowing of mortgage debt fell by £0.2 billion in August to £4.3 billion, continuing a downward trend after a £0.9 billion decrease to £4.5 billion in July. Approvals for house purchases, a key forward-looking measure, dropped by 500 in August to 64,700, while remortgaging approvals slid by 900 to 37,900. Remortgaging activity’s decline suggests that many homeowners are reluctant to lock in new deals at higher rates, preferring to wait for more favorable conditions.
Futcher added, “Mortgage borrowing saw a sharp decline following the changes to stamp duty earlier this year, and it has been struggling since. Today’s figures show this trend has continued... Although a summer slowdown is typical, when combined with the other ongoing market pressures, including budget rumours, it could have wider implications for house prices. We are already seeing a dip in demand for homes over £500,000.”
Despite these headwinds, there are glimmers of stability elsewhere. Consumer credit borrowing held steady at £1.7 billion in July, with a slight decrease in credit card borrowing offset by a small uptick in other forms of consumer credit. While the overall level of borrowing has not risen, the Bank of England’s base rate remains elevated and is expected to stay high for some time, raising concerns about the long-term resilience of household finances.
Households are still managing to save, albeit at a slower pace. Deposits with banks and building societies increased by £5.4 billion in August, down from £7.1 billion in July. This included £2.3 billion into ISAs, £2.6 billion into interest-bearing accounts, and £0.7 billion into non-interest-bearing accounts. “Higher costs during the summer months for things such as holidays and children’s clubs during the school break will have had an impact on how much could be set aside, but it is encouraging to see that many people have still been able to top up their savings,” Futcher noted.
As the UK approaches a much-anticipated tax-raising Budget at the end of November, households are on alert. Richard Pinch, Senior Risk Director at Broadstone, commented, “Mortgage borrowing decreased again in August reflecting the continued economic uncertainty lingering over the UK in spite of the most recent rate cut from the Bank of England. Inflation concerns remain persistent and with another tax-raising Budget looking inevitable at the end of November, household budgets remain squeezed. Until there is more certainty in the market or a significant improvement in borrowing conditions, mortgage volumes are likely to remain depressed as we head into 2026.”
In the markets, the mood has been cautiously optimistic. On September 29, UK gilts and the pound rose following a speech by Chancellor Rachel Reeves at the Labour Party conference, according to Bloomberg. Reeves reaffirmed her party’s commitment to fiscal stability and her manifesto pledge not to raise the main taxes. She warned it is “dangerously” wrong to suggest that government can “cast off any constraints on spending.” Reeves also confirmed funding for Northern Powerhouse Rail and ongoing talks with the EU on a youth mobility scheme, while describing Reform UK as the “biggest threat” to working people. Notably, she told Bloomberg TV that a wealth tax isn’t necessary.
The FTSE 100 index reflected these developments, remaining up for the day in line with gains across Europe and the US, even as it slid from its highs. Shares in major UK pharma companies like GSK and AstraZeneca rose, with AstraZeneca announcing an upgrade to its US listing. Economic data released the same day suggested the UK housing market was holding steady and the labour market remained cool, offering some reassurance to investors.
The pound sterling, meanwhile, climbed to near 1.3450 against the US dollar as the US government faced shutdown risks, according to FXStreet. The US Dollar Index fell to near 97.95, pressured by Congressional struggles to pass a short-term funding bill before an October deadline. This backdrop contributed to the pound’s strength, even as investors braced for high volatility in currency markets in the coming days.
Bank of England Monetary Policy Committee member Swati Dhingra has publicly advocated for quick interest rate cuts in the UK, citing growing concerns about the labour market. In a column published by The Times, Dhingra wrote, “We can afford to cut rates further and not put additional strain on economic growth without threatening the inflation target.” She expressed confidence that UK inflation risks would soon fade, especially in comparison to the Eurozone, suggesting that the central bank should be “overly cautious on further interest rate cuts.” Dhingra was one of two MPC members who voted to hold interest rates steady at 4% in the Bank’s most recent meeting, with traders widely expecting the rate to remain unchanged in November.
Labour market data adds weight to Dhingra’s concerns. UK job-search website Adzuna reported that online job postings dropped by 1.3% in the 12 months ending in August, the first decline since February. This slowdown in hiring could force Bank of England officials to adopt a more dovish stance on monetary policy, especially as the revised Q2 GDP figures—due October 1—are expected to confirm modest 0.3% quarterly growth.
With inflation still above target, the Bank of England faces a delicate balancing act. Raising rates could further dampen growth, while cutting too soon risks reigniting price pressures. The Bank’s primary objective remains price stability, aiming for a steady 2% inflation rate. Its decisions ripple through the economy, impacting everything from mortgage costs to the value of the pound.
For now, the UK’s economic story is one of cautious adaptation. Households are squeezing savings, mortgage approvals are subdued, and policymakers are treading carefully. The coming months—especially the November Budget and upcoming Bank of England policy decisions—are likely to set the tone for 2026, as Britain seeks to chart a path through economic headwinds and political crosscurrents.
