UK Economy Records Sluggish 0.1% Growth in Q4 2025, Missing Forecasts
The UK economy experienced modest growth in the fourth quarter of 2025, falling marginally short of predictions as an anticipated lift from the services sector failed to materialise. Latest data from the Office for National Statistics (ONS) revealed the economy grew a lacklustre 0.1 per cent in the three months to December 2025.
A poll of City economists by Bloomberg had forecast 0.2 per cent growth for the fourth quarter. This occurred as the services sector, which is frequently regarded as the powerhouse of the economy owing to its substantial contribution of over 80 per cent to GDP, registered no growth during the period.
Mixed Performance Across Sectors
Production output rose 1.2 per cent whilst construction contracted 2.1 per cent, as reported by City AM. "The economy continued to grow slowly in the last three months of the year, with the growth rate unchanged from the previous quarter," Liz McKeown, director of economic statistics at the ONS, said.
"The often-dominant services sector showed no growth, with the main driver instead coming from manufacturing." McKeown added construction recorded its weakest performance in more than four years.
Economic Context and Fiscal Measures
A rise in activity was anticipated by economists following numerous surveys in the final quarter which indicated businesses had suspended their investment plans until uncertainty surrounding the public finances was resolved. Chancellor of the Exchequer Rachel Reeves had been anticipated to confront a severe fiscal shortfall following a productivity downgrade.
However, the Office for Budget Responsibility's economic forecast subsequently revealed a spike in tax revenues – driven primarily by inflation – which more than compensated for the £16bn downgrade. Nevertheless, Reeves imposed tax increases totalling £26bn in the Budget, although businesses managed to mitigate some of their gravest concerns.
Business Confidence and Growth Concerns
The elimination of certain fiscal uncertainty was predicted by economists to have triggered a boost in activity following the November Budget. An Institute of Directors (IoD) survey preceding the Budget demonstrated private sector confidence had tumbled to its lowest level since the industry body began gathering data a decade earlier as tax speculation intensified.
Economists have raised concerns about a late-year growth surge with Oxford Economics highlighting that any improvement would represent "payback" for declining output during preceding months. "This appears to be noisy data rather than there being any strong underlying narrative," Oxford Economics UK economists Andrew Goodwin and Edward Allenby said.
Revised Growth Projections
The Bank of England also delivered Reeves a setback during the Monetary Policy Committee's most recent meeting where they reduced their growth projection for 2026 to 0.9 per cent from 1.2 per cent. This coincided with a revised growth estimate for 2025 of 1.4 per cent, down from the earlier 1.5 per cent.
Simon French, chief economist at Panmure Liberum, stated: "2026 won't be a vintage year for UK economic performance by historical standards. The composition of economic growth remains overly reliant on public sector spending, and housing wealth."
