The U.K. economy expanded just 0.1% in the final quarter of 2025, undershooting expectations and intensifying scrutiny of Prime Minister Keir Starmer and Chancellor Rachel Reeves, whose £26 billion tax package was intended to stabilize public finances and restore investor confidence.
Figures released by the Office for National Statistics showed the economy growing at the same subdued pace as the previous quarter, below the 0.2% forecast by economists surveyed by Bloomberg. The data revealed stark divergences beneath the headline number.
- Services sector (≈80% of GDP): 0.0% growth
- Manufacturing: +1.2%
- Construction: -2.1%, the sharpest fall in four years
"The economy continued to grow slowly in the last three months of the year, with the growth rate unchanged from the previous quarter. The often-dominant services sector showed no growth, with the main driver instead coming from manufacturing," said Liz McKeown of the ONS.
The revisions added to the picture of fragility. November's growth was trimmed to 0.2% from 0.3%, October remained at -0.1%, and December-the first full month following Reeves's Autumn Budget-posted just 0.1% growth.
Reeves had argued that her fiscal tightening would steady markets while unlocking longer-term expansion. The Budget included £26 billion in tax increases aimed at shoring up public finances. Yet business investment remains cautious, with some executives citing political uncertainty and ongoing leadership speculation as factors weighing on sentiment.
Lindsay James, investment strategist at Quilter, said: "A long list of data revisions from the ONS has revealed the UK economy barely kept its head above water in the final quarter of last year. We should now be reaching a place where peak uncertainty is behind us, and businesses are better able to plan for the post budget and post trade deal world. However, the well flagged leadership challenge - which headlines would have us believe is fast becoming a case of when rather than if - risks derailing that."
Pre-Budget surveys painted a similar mood. The Institute of Directors reported business confidence at its lowest level in a decade. The Office for Budget Responsibility had previously suggested that inflation-driven tax receipts might cushion fiscal pressures, but weak growth complicates that outlook.
Opposition figures seized on the figures. Mel Stride said: "These disappointing statistics show a Downing Street and a Treasury that have taken their eye off the ball. Wes Streeting is correct in stating that Labour lacks a 'growth strategy.' They are distracted by scandals of their own creation as Keir Starmer's authority dwindles."
Reeves defended the government's approach, arguing that structural progress remains intact. "Thanks to the choices we have 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," she said. "The Government has the right economic plan to build a stronger and more secure economy, reducing the cost of living, cutting the national debt and creating conditions for growth and investment across the country."
