(Feb 12): The UK economy grew less than forecast in the fourth quarter as business investment shrank and services stagnated, adding to pressure on embattled Prime Minister Keir Starmer.
Gross domestic product (GDP) rose 0.1%, the Office for National Statistics (ONS) said on Thursday. It followed growth of 0.1% in the third quarter and fell short of the 0.2% median estimate of economists surveyed by Bloomberg. The economy expanded just 0.1% in December alone. The pound held losses following the data.
The figures mark a disappointing end to a year in which the economy was forced to navigate huge tax rises, US President Donald Trump’s trade wars and a devastating cyberattack at the largest UK car manufacturer. Businesses and consumers remained cautious in December despite being spared further immediate pain in Chancellor of the Exchequer Rachel Reeves’ Nov 26 budget.
It’s a further blow to Starmer, who has come under intense pressure to resign over his decision to appoint Peter Mandelson as the ambassador to the US despite the Labour grandee’s known links to the late convicted pedophile Jeffrey Epstein. While Starmer bought some time on Monday, his future as the prime minister still looks to be in peril.
Real GDP per head — a key gauge of living standards — fell for a second quarter in a row, the ONS said.
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“The UK economy ended 2025 firmly in the slow lane, undershooting expectations and remaining in a low gear in the final quarter of the year as businesses and consumers digested the November Budget,” said Scott Gardner, an investment strategist at JPMorgan Personal Investing. “This marks a clear reversal in fortunes for the economy after strong growth shown in the first half of the year failed to carry over into the rest of 2025.”
In the latest quarter, only industrial production grew as output bounced back from the cyber attack at Jaguar Land Rover that closed its factories for six weeks. Output stagnated in the dominant services sector and fell sharply in construction. Business investment fell 2.7%., the biggest drop since 2021, with spending on transport equipment down sharply. In December, only the services sector expanded.
The economy performed better in 2025 than had been expected, with growth of 1.3% well above the 1% economists were predicting this time last year. There are also signs of improvement in recent surveys of consumer and business sentiment. However, the outlook for this year remains subdued.
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The Bank of England last week downgraded its growth projection for 2026 to 0.9% from 1.2% and said it expects unemployment to peak higher than previously thought.
The services was almost certainly held back by resident doctors carrying out five-day strikes in both November and December in a dispute with the government over pay and conditions. Overall, output in human health and social work rose by 0.3%.
Chancellor of the Exchequer Rachel Reeves said the government was pursuing the right plan “to build a stronger and more secure economy, cutting the cost of living, cutting the national debt and creating the conditions for growth”.
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