On a monthly basis, output rose 0.1 per cent in December, in line with forecasts, but down from an upwardly revised 0.2 per cent in November.
The ONS data shows that growth in the second half of 2025 stalled, following a 0.7 per cent expansion in the first quarter and 0.2 per cent in the second. For the full year, GDP increased by 1.3 per cent, up from 1.1 per cent in 2024. Average living standards, measured by real GDP per person, rose 1 per cent last year, reversing a flat 2024.
Sector Performance
The modest growth in the final quarter was primarily driven by manufacturing, while the services sector stagnated and construction recorded its worst output in over four years, falling 2.1 per cent. Liz McKeown, ONS director of economic statistics, noted:
“The economy continued to grow slowly in the last three months of the year. The often-dominant services sector showed no growth, with the main driver instead coming from manufacturing. Construction registered its worst performance in more than four years.”
Budget Uncertainty and Political Factors
The slowdown coincided with speculation over tax increases announced in Chancellor Rachel Reeves’s November 2025 budget, which introduced £26 billion in tax rises. Analysts say the uncertainty may have dampened consumer and business confidence.
Luke Bartholomew, deputy chief economist at Aberdeen Asset Management, commented:
“Sentiment improved after the budget, but recent political uncertainty may reverse that pick-up in activity.”
Scott Gardner of JP Morgan added:
“The UK economy ended 2025 firmly in the slow lane, undershooting expectations as businesses and consumers digested the chancellor’s November budget.”
Outlook for 2026
Economists remain cautiously optimistic for 2026. Yael Selfin, chief economist at KPMG, predicted that economic activity has picked up in the first quarter of 2026 and expects momentum to strengthen, forecasting 1 per cent growth for the year.
The Bank of England, which cut interest rates to 3.75 per cent in December, the lowest in three years expects inflation to return to its 2 per cent target by spring, aided by falling household energy costs. Forward-looking indicators suggest further rate cuts could support a sustained recovery in consumer sentiment.
Reeves responded to the GDP figures by highlighting the government’s interventions:
“Thanks to the choices we’ve made, we’ve seen six interest rate cuts since the election, inflation falling faster than predicted, and ours is the fastest growing G7 economy in Europe.”
The UK pound edged down slightly to $1.36 following the GDP release, while government borrowing costs fell. The spring statement on March 3 will provide the latest official assessment of the UK economy by the Office for Budget Responsibility (OBR).
