UK economy barely grows in Q4 as Budget uncertainty weighs
The figures underscore why investors think BOE is more likely to cut interest rates again in March
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[MANCHESTER] Britain’s economy barely grew in the final quarter of 2025 as activity fared worse than initially estimated during the run-up to Finance Minister Rachel Reeves’ Budget, official figures showed on Thursday (Feb 12).
Gross domestic product grew by 0.1 per cent in the October-to-December period, the same slow pace as in the third quarter, the Office for National Statistics (ONS) said.
Economists polled by Reuters, as well as the Bank of England (BOE), had forecast 0.2 per cent Q4 growth compared with the previous three months.
The period was marked by rampant speculation about tax increases ahead of Reeves’ Budget on Nov 26.
The ONS revised down monthly GDP data for the three months ending in November to show a 0.1 per cent contraction rather than 0.1 per cent growth.
More recent data suggested that uncertainty has lifted for consumers and businesses.
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Luke Bartholomew, deputy chief economist at Aberdeen, said: “Looking at various surveys, there were some tentative signs that sentiment turned a corner and started to improve after the Budget last year, which could help deliver a pickup in activity this year...
“However, recent political uncertainty may see that sentiment bounce reverse.”
UK Prime Minister Keir Starmer has had to fight to keep his grip on Downing Street this week due to fallout from the Jeffrey Epstein scandal.
Thursday’s figures underscored why investors think that the BOE is more likely to cut interest rates again in March.
The monthly GDP data showed a sharp downward revision to growth.
The data suggested hesitancy on the part of businesses during Q4 as their investment fell by almost 3 per cent – the biggest quarter-on-quarter drop since early 2021, driven largely by volatile transport investment.
Economist Thomas Pugh at tax and consultancy company RSM said the overall weakness in business investment suggested Budget uncertainty held back investment and spending.
Manufacturing was the biggest driver of the increase in output, despite the fact that car output was still recovering from September’s cyberattack on Jaguar Land Rover, while the dominant services sector was flat.
Construction output contracted by 2.1 per cent.
In 2025 as a whole, Britain’s economy grew by an annual average 1.3 per cent, the ONS said, higher than the 0.9 per cent in France, 0.7 per cent in Italy and 0.4 per cent in Germany.
British economic growth for each head contracted by 0.1 per cent for a second quarter, although it rose by 1 per cent for 2025 as a whole.
In December alone, the economy grew by 0.1 per cent, the ONS said, as expected in the Reuters poll. That left the size of the economy back at its level in June 2025. REUTERS
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