UK economy subdued at end of 2025 as budget uncertainty weighed on businesses and consumers

The British economy experienced minimal growth in the fourth quarter of 2025, expanding by just 0.1% according to figures released Thursday by the Office for National Statistics. This sluggish performance mirrors the previous quarter’s growth rate, raising concerns about the country’s economic trajectory.

For the entirety of 2025, the economy grew by 1.3%, a slight improvement from the 1.1% recorded in 2024 and the highest annual growth since 2022. However, economists have expressed disappointment with the year’s conclusion, particularly given stronger performance earlier in the year.

Analysts attribute the lackluster fourth-quarter performance largely to uncertainty surrounding the Labour government’s November budget. Throughout much of the period, businesses and consumers adopted a cautious approach amid widespread speculation that Treasury chief Rachel Reeves might break key promises regarding income tax levels.

“The underwhelming final quarter caps off another disheartening year for the U.K. economy with growth tailing off unnervingly quickly after the strong start to 2025,” said Suren Thiru, economics director at the accounting body ICAEW. Thiru pointed to “rising taxes, heightened uncertainty and poor productivity” as factors that increasingly constrained economic activity.

The actual tax increases implemented in the budget proved more modest than many had feared, but the prolonged uncertainty appears to have dampened both business investment and consumer spending during the crucial pre-holiday period. This cautious behavior has contributed to the world’s sixth-largest economy struggling to gain meaningful momentum.

Some economic indicators suggest a potential uptick in growth during early 2026, offering a glimmer of hope for improved performance. However, forecasts for the full year remain subdued. The Bank of England recently revised its growth projections downward, reducing its 2026 forecast from 1.2% to 0.9% and its 2027 forecast from 1.6% to 1.5%.

The tepid economic growth has presented political challenges for the Labour government, which has seen its public support decline significantly since winning the 2024 general election. Economic concerns have featured prominently in this erosion of popularity, with many voters expressing dissatisfaction with the pace of economic improvement.

Government officials are now placing their hopes on potential monetary policy adjustments. With growth remaining weak and inflation expected to decrease sharply throughout 2026, the Bank of England may consider further interest rate cuts. The central bank kept its main rate unchanged at 3.75% in its most recent meeting, but analysts suggest a quarter percentage point reduction to 3.50% could come as soon as March.

Simon Pittaway, senior economist at the Resolution Foundation think tank, emphasized the importance of policy focus in the coming year. “The task for 2026 is for the government to double down on its growth agenda to build a sustained economic recovery that will eventually flow into people’s pay packets,” he noted.

The economic challenges facing Britain come amid a complex global landscape, with many advanced economies still navigating post-pandemic adjustments and geopolitical uncertainties. For the U.K., which continues to adapt to its post-Brexit reality, generating sustained economic momentum remains particularly crucial for long-term prosperity.

As the country moves further into 2026, policymakers face the delicate challenge of stimulating growth while addressing persistent structural issues within the economy, including productivity concerns and regional economic disparities that have long characterized the British economic landscape.