THE UK ECONOMY recorded limited growth at the end of 2025, official data confirmed on Tuesday, adding to the challenge for the government as it seeks to keep growth on track this year amid expectations that the Iran war could push up inflation and affect demand.
Gross domestic product increased by 0.1 per cent in the October-to-December period, the Office for National Statistics said.
Economists polled by Reuters had forecast that the reading for gross domestic product in the fourth quarter would be unrevised.
Growth in the third quarter was also confirmed at 0.1 per cent.
"Such a weak economic backdrop makes it more likely that the inevitable jump in CPI inflation in the coming months won’t morph into a long-lasting rise that requires the Bank of England to raise interest rates," Paul Dales, chief UK economist at Capital Economics, said.
Investors are betting on two, or possibly three, quarter-point rate hikes by the BoE before the end of this year. But most economists polled by Reuters think the central bank will not increase borrowing costs, given the weakness in the economy.
Last week, the Organisation for Economic Cooperation and Development cut its forecast for British economic growth this year to 0.7 per cent from a previous forecast of 1.2 per cent, the biggest downgrade of any major economy.
That would represent a halving of the pace of growth seen over 2025, which the ONS revised up to 1.4 per cent from a previous estimate of 1.3 per cent.
Prime minister Keir Starmer and chancellor Rachel Reeves have promised voters that they will speed up the economy, a challenge that looks bigger against the backdrop of the conflict in West Asia.
Most of the growth in the last three months of 2025 came from the public sector. Business investment fell.
However, there were some signs in Tuesday's data that offered analysts some grounds for confidence about the outlook, with households putting more money aside and raising the savings ratio by 0.8 percentage points to 9.9 per cent.
"We think there is still a healthy buffer for consumers to reduce their saving rate and help cushion the blow from higher energy prices over the rest of 2026," Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said.
The ONS said Britain's economy in the fourth quarter grew 1.0 per cent from a year earlier — unchanged from an initial estimate — while, on a per capita basis, output was 0.1 per cent lower than the year before.
Britain's current account deficit in the three months to the end of December totalled 18.4 billion pounds, compared with a Reuters poll forecast of 23.4 billion pounds, and equivalent to 2.4 per cent of GDP, larger than 1.4 per cent in the third quarter.
(With inputs from Reuters)
