UK economy barely grew as budget uncertainty weighed
The UK economy barely grew in the final quarter of 2025 as activity fared worse than initially forecast during the transition to finance minister Rachel Reeves’ budget.
Gross domestic product rose 0.1 percent in the October-December period, at the same slow pace as the third quarter, the Office for National Statistics said on Thursday.
Economists surveyed by Reuters and the Bank of England had forecast growth of 0.2 percent in the fourth quarter, compared with the previous three months.
The period has been marked by widespread speculation about tax increases ahead of Reeves’ Nov. 26 budget.
The ONS revised its monthly GDP data for the three months to November to show a 0.1 per cent contraction instead of 0.1 per cent growth.
Some more recent data suggests that uncertainty for consumers and businesses is fading.
“Looking at the various surveys, there were some tentative signs that sentiment was turning around and starting to improve after last year’s budget, which could help activity pick up this year,” said Aberdeen deputy chief economist Luke Bartholomew.
“However, recent political uncertainty could see sentiment reverse.”
Prime Minister Keir Starmer has had to fight to maintain his grip on Downing Street this week due to the fallout from the Jeffrey Epstein scandal.
Thursday’s figures underlined why investors think it is more likely that the Bank of England will not cut interest rates again in March.
Monthly GDP data showed a sharp downward revision in growth.
Data shows businesses wavering in the fourth quarter as their investments fell by almost three percent; This is the largest quarterly decline since the beginning of 2021, driven largely by volatile transportation investments.
While car production continues to recover following the cyber attack on Jaguar Land Rover in September, the biggest driver of the increase in output was manufacturing, with the dominant service sector remaining flat.
Construction production contracted by 2.1 percent.
The Office for National Statistics stated that the UK economy will grow by an average of 1.3 percent annually throughout 2025, France by 0.9 percent, Italy by 0.7 percent and Germany by 0.4 percent.
Economic growth per capita in the UK contracted by 0.1 per cent in the second quarter, but rose by 1.0 per cent for the whole of 2025.
The ONS said the economy grew by 0.1 per cent in December alone, as expected in a Reuters poll.
This left the size of the economy at the June 2025 level.
