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UK economy posts weak 0.1% growth in final quarter of 2025
The UK economy expanded by just 0.1% in the last three months of 2025, falling short of economists' expectations, official figures show. Chancellor Rachel Reeves acknowledged more work lies ahead but highlighted full-year growth beating forecasts.
Annual growth tops predictions but momentum stalls
The Office for National Statistics (ONS) reported 1.3% growth for 2025 as a whole, slightly above earlier projections. However, the final quarter's performance revealed underlying weaknesses, with no growth in the dominant services sector for the first time in two years.
Construction output suffered its sharpest quarterly decline in four years, dropping 2.1%. New private housing projects led the downturn, accounting for the largest share of the sector's contraction. Manufacturing provided the sole bright spot, driving the modest overall GDP increase.
Chancellor and opposition trade blame
Reeves told reporters the UK remained the fastest-growing economy among the European G7 nations in 2025. "GDP per capita has risen over the past year after falling in the previous parliament," she said. "Is there more to do? Absolutely. But we've created the conditions for growth."
Conservative shadow chancellor Mel Stride countered that Labour had "weakened our economy," while the Liberal Democrats accused Reeves' first two budgets of "killing off the economic recovery."
Services sector stagnates as businesses hold back
The services sector, which generates 80% of UK economic output, flatlined in the final quarter. Professional services, education, arts, and financial services dragged on growth, offset only by gains in administrative services and IT.
Jaguar Land Rover's return to production after a cyber-attack provided a temporary boost, but pre-Budget uncertainty led many firms to delay investment. Nigel Day, who runs a heat pump installation business in Ipswich, said customers grew cautious about spending. "We've had to skip hiring young workers due to minimum wage increases," he said. "Apprenticeships are now out of reach."
Bank of England cuts growth forecast amid rate cut speculation
The Bank of England last week reduced its 2026 growth forecast to 0.9% from 1.2% and raised its unemployment projection to 5.3%. While some economists predict a March interest rate cut, others urge caution. Suren Thiru of the ICAEW said the slight GDP uptick would encourage policymakers to wait for clearer signs of slowing inflation.
"The overall picture as 2025 drew to a close continued to be one of subdued growth."
Liz McKeown, ONS Director of Economic Statistics
Business leaders cite taxes and inflation as top concerns
The British Chambers of Commerce reported that rising taxes and inflation remain the primary worries for business leaders. Employer National Insurance hikes have particularly increased hiring costs, according to company surveys.
