UK Economy Set for Modest Growth Amid Budget Concerns
The UK economy is anticipated to have recorded modest growth in the final quarter of 2025, despite significant pressures stemming from budget uncertainty. Economists broadly predict that the economy expanded by 0.1% in the last three months of the year, mirroring the growth rate seen in the third quarter.
ONS Data Release and Economic Predictions
The Office for National Statistics (ONS) is scheduled to unveil the latest UK GDP data on Thursday, providing detailed insights into economic performance for December, the fourth quarter, and the entirety of 2025. This release is highly anticipated as it will shed light on how the economy fared amid fluctuating conditions.
Some analysts suggest that fourth-quarter growth could edge slightly higher, potentially reaching 0.2%, following stronger-than-expected activity in November. This uptick may be attributed to improved clarity after the autumn budget, which likely supported businesses in the lead-up to the Christmas period.
Monthly Economic Fluctuations and Sectoral Impacts
Previous ONS figures indicated a contraction of 0.1% in October, followed by an expansion of 0.3% in November. The manufacturing sector notably benefited from recovering production at Jaguar Land Rover after a major cyber attack, contributing to this rebound.
However, December is projected to have seen no growth, according to estimates from Pantheon Macroeconomics. Weak data for the month is supported by various industry surveys, including the construction industry PMI, which revealed a continued deep decline across housing, commercial construction, and civil engineering sectors.
Consumer Spending and Services Sector Improvement
Despite these challenges, there are signs of resilience. Improved certainty following the budget may have driven a rise in consumer spending, albeit at modest levels. Victoria Scholar, head of investment at Interactive Investor, commented, "It is likely that economic activity picked up after the budget once that cloud of uncertainty shifted to the rearview mirror in December."
She added, "Plus, there could have been an improvement in the services sector with consumers spending on things like food and beverages, retail, and hotels around the festive season." This aligns with key indicators pointing towards an enhancement in the crucial services sector as consumer spending increases.
Expert Forecasts and Annual Growth Projections
Robert Wood, chief UK economist at Pantheon Macroeconomics, noted that GDP growth "could tip to 0.2%" but maintained his prediction of 0.1%. He stated, "We think the broad thrust from activity in the services sub-sectors in December indicates that budget uncertainty is already fading quickly."
Investec experts are forecasting growth of 0.2% for December and 0.2% for the fourth quarter overall. This would result in annual growth of 1.4% for 2025, up from 1.1% in 2024. Sandra Horsfield of Investec Economics remarked, "The big picture is that the UK economy had defied the gloomy popular narrative and outperformed expectations during 2025."
She elaborated, "Our forecast equates to GDP growth of 1.4% for the full year, whereas the consensus forecast in January 2025 had been for 1.2% GDP growth. We project a similar story of resilience and outperformance relative to consensus for 2026, as utilities investment and, eventually, housebuilding accelerate."
Broader Economic Outlook and Bank of England Adjustments
Nevertheless, the broader outlook for UK growth remains muted. The Bank of England recently revised its estimates, now believing the economy grew by 1.4% in 2025, down from a previous estimate of 1.5%. It has also cut its growth forecasts for 2026 from 1.2% to 0.9% and for 2027 from 1.6% to 1.5%.
This cautious perspective underscores the ongoing challenges, but the modest growth recorded in late 2025 highlights the economy's ability to navigate uncertainty and maintain a steady, if slow, trajectory.
