UK economy grows 0.1% in Q4 2025

The UK economy expanded by 0.1% in the final three months of 2025, according to preliminary estimates from the Office for National Statistics, avoiding contraction but maintaining the subdued pace recorded in the previous quarter.

Quarter-on-quarter growth was driven primarily by services, which offset continued weakness in manufacturing and construction. Consumer-facing sectors, including retail and hospitality, contributed modest gains, while industrial output remained uneven.

Monthly data showed output rising by 0.3% in November following a contraction in October, with December activity broadly flat. The pattern reflects limited underlying momentum across the economy, with gains concentrated in selected areas rather than broad-based expansion.

Speaking to The Standard ahead of the ONS data being published, Victoria Scholar, head of investment at Interactive Investor, said: “Activity picked up after the budget once that cloud of uncertainty shifted to the rearview mirror, and services performance in December indicates that economic momentum was not entirely lost.”

Full-year growth for 2025 is estimated at approximately 1.3% to 1.4%, slightly ahead of earlier projections but below historical averages. The UK continues to lag several advanced economies in overall output recovery, with eurozone fourth-quarter growth marginally stronger.

The figures arrive as the Bank of England maintains a cautious monetary stance. Interest rates remain elevated following the inflationary pressures of the past two years, although markets have increasingly priced in potential cuts later in 2026 should economic momentum remain muted.

Labour market indicators have shown signs of cooling, with wage growth moderating and unemployment edging higher. That trend may limit consumer spending in early 2026, particularly if borrowing costs remain restrictive.

For businesses, the latest data reinforce the challenge of operating in a low-growth environment. Investment decisions, hiring plans, and capital allocation strategies are likely to remain measured until clearer evidence of sustained expansion emerges.

While the fourth quarter avoided contraction, the narrow margin of growth highlights an economy still navigating fiscal adjustment, elevated interest rates, and uneven sector performance.