Market Update: We break down the business implications, market impact, and expert insights related to Market Update: UK economy grows by shy 0.1% in Q4 as budget uncertainty weighs in – Full Analysis.
Britain’s economy barely expanded in the final quarter of 2025 as activity fared worse than initially estimated during the run-up to Treasury chief Rachel Reeves’ budget, official figures showed on Thursday.
Gross domestic product (GDP) grew by a mere 0.1% 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% fourth-quarter 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 to November to show a 0.1% contraction rather than 0.1% growth.
Some more recent data have suggested that uncertainty has lifted for consumers and businesses.
“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 pick-up in activity this year,” Luke Bartholomew, deputy chief economist at Aberdeen, said.
‘Political uncertainty’
“However, recent political uncertainty may see that sentiment bounce reverse.”
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 Bank of England is more likely than not 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 the fourth quarter as their investment fell by almost 3% – the biggest quarter-on-quarter drop since early 2021, driven largely by volatile transport investment.
Economist Thomas Pugh at tax and consultancy firm 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 cyber attack on Jaguar Land Rover, while the dominant services sector was flat. Construction output contracted by 2.1%.
In 2025 as a whole, Britain’s economy grew by an annual average 1.3%, the Office for National Statistics said, compared with 0.9% in France, 0.7% in Italy and 0.4% in Germany.
British economic growth per head contracted by 0.1% for the second quarter, although it rose by 1.0% for 2025 as a whole.
In December alone, the economy grew by 0.1%, the ONS said, as expected in the Reuters poll. That left the size of the economy back at its level of June 2025.