The UK economy managed to record a slight growth of 0.1% in the final quarter of 2025, maintaining the same pace as the previous quarter, despite facing significant hurdles, including budget uncertainties and a lacklustre performance in December. According to the Office for National Statistics (ONS), this incremental growth mirrors a broader trend, with the overall GDP for the year showing a moderate increase of 1.3%, up from 1.1% in 2024.
Economic Performance Overview
The ONS’s latest figures reveal that the economy’s growth rate remained stagnant in December, with a reported increase of just 0.1%. This marks a continuation of a rocky period for the UK economy, which experienced a 0.1% decline in output in October, followed by a modest rebound of 0.2% in November, aided by a recovery in manufacturing, particularly at Jaguar Land Rover after a significant cyber attack.
Despite the positive growth for the year, the performance fell short of the Bank of England’s expectations, which had forecasted a 1.4% increase. Liz McKeown, ONS director of economic statistics, noted that while the services sector typically drives the economy, it reported no growth in the fourth quarter, with the manufacturing sector being the primary contributor to the slight GDP increase.
Sector Performance Insights
The manufacturing sector grew by 1.2%, providing a much-needed boost during a turbulent quarter. However, the construction industry faced a significant setback, recording a 2.1% decline—the worst performance in over four years. This downturn in construction reflects broader economic challenges as businesses grapple with budget uncertainties and shifting consumer sentiment.
Chancellor Rachel Reeves has been under scrutiny for the muted economic performance, particularly as the government prepares for a crucial fiscal event on November 26. While she has asserted that the government’s economic strategy aims to foster a more robust and secure economy, critics are questioning the efficacy of these measures in stimulating growth.
Market Sentiment and Future Outlook
Scott Gardner, an investment strategist at JP Morgan Personal Investing, expressed concerns about the UK economy’s slow trajectory, stating it ended 2025 significantly below expectations. Gardner indicated that businesses and consumers are still adjusting to the implications of the Chancellor’s budget announcement, which may have stifled economic momentum as the year closed.
In light of these developments, the overall sentiment in the market remains cautious. The sluggish growth highlights the fragility of the economic recovery and raises questions about the government’s ability to navigate ongoing challenges effectively.
Why it Matters
The modest growth reported by the ONS underscores the ongoing economic uncertainty facing the UK as it moves into 2026. With key sectors struggling and consumer confidence wavering, the government’s strategies will be critical in determining whether the economy can gain traction in the coming months. The implications for businesses, investments, and everyday consumers could be significant, making it essential for policymakers to address the underlying issues stifling growth and to foster a more favourable economic environment.
