Britain’s economy expanded by just 1.3pc in 2025, falling short of official forecasts and underscoring what critics describe as a faltering start to economic management by the Labour Party.
New figures released by the Office for National Statistics show gross domestic product grew by 1.3pc over the year, below the 1.5pc projected by the Office for Budget Responsibility and the 1.4pc forecast by the International Monetary Fund.
Output rose by just 0.1pc in the final quarter of 2025, half the 0.2pc expected by economists, with the economy registering the same meagre 0.1pc growth in both the third and fourth quarters.
The sluggish performance came amid mounting pressure on businesses and households, who have faced higher taxes and prolonged uncertainty surrounding the Budget. Business leaders have repeatedly warned that wavering fiscal signals and the threat of tax rises have dampened confidence.
Liz McKeown, director of economic statistics at the ONS, said:
“The often dominant services sector showed no growth, with the main driver instead coming from manufacturing.
“Construction, meanwhile, registered its worst performance in more than four years.”
Separate data showed business investment fell sharply by 2.7pc in the final three months of the year, reversing a 1.6pc increase in the previous quarter. The decline coincided with speculation ahead of the Budget, when the Chancellor suggested tax increases might be required to address a supposed black hole in the public finances that ultimately failed to materialise.
Ruth Gregory of Capital Economics described the 0.1pc fourth-quarter growth figure as “disappointing” and said it “suggests the economy still has very little momentum”. She added that business sentiment indicates investment “won’t rebound strongly in the near term”.
She said the “drivers of growth were also very narrow”, noting that December’s modest strength came primarily from a 0.3pc monthly rise in services output. Government consumption, up 0.4pc in the fourth quarter, also helped prop up overall growth.
“So the big picture is that private sector activity still appears to be extremely subdued,” Ms Gregory said.
Suren Thiru, economics director at the ICAEW, said:
“These figures confirm that the UK economy ended 2025 with a whimper as weaker confidence and steepling cost pressures helped limit output across the fourth quarter, including through minimal growth in December.
“Businesses had a particularly bleak quarter as the dark cloud of uncertainty caused by the Budget and higher costs severely curtailed trade and investment plans.
“The underwhelming final quarter caps off another disheartening year for the UK economy with growth tailing off unnervingly quickly after the strong start to 2025, as rising taxes, heightened uncertainty and poor productivity increasingly squeezed activity.
“The UK economy should see slightly stronger growth in this current quarter with reduced uncertainty now the Budget is in the rear-view mirror, and lower inflation likely to boost consumer spending and business activity, despite higher unemployment.
“These figures mean that a March interest rate cut remains doubtful by giving those policymakers wanting more evidence that inflation is slowing comfort over economic conditions to delay reducing rates, particularly given the elevated political uncertainty.”
Expectations of a spring rate cut by the Bank of England have receded as policymakers weigh sticky inflation against weak output.
Despite the subdued headline figures, Lord O’Neill, former head of Goldman Sachs Asset Management, told the BBC that the modest improvement on 2024 reflected the fact that the “underlying productivity of the economy is showing tentative signs of finally starting to improve”.
Even so, the 1.3pc expansion leaves Britain on course for what some economists fear could be its weakest decade of growth since the 1920s. Andrew Sentance, a former rate setter at the Bank of England, said the country was on track for “the most dismal decade for growth in 100 years”.
Political reaction was swift. Mel Stride, the shadow chancellor, said:
“This morning’s news the economy grew by just 0.1pc in the final three months of last year shows Labour’s choices have weakened our economy.
“In fact, GDP per head has actually fallen for the second quarter in a row.
“These disappointing statistics show a Downing Street and a Treasury that have taken their eye off the ball. Wes Streeting is right to say Labour have ‘no growth strategy’. They are distracted by scandals of their own making as Keir Starmer’s authority crumbles.
“Only the Conservatives have the leader with a backbone, a plan and the team to deliver a stronger economy and get Britain working again.”
The remarks referenced comments by Wes Streeting and mounting scrutiny of Keir Starmer, as Labour faces criticism that it has yet to articulate a coherent path to sustained growth.
For now, the data point to an economy that lost momentum as 2025 drew to a close, with private sector activity subdued, investment retreating and growth undershooting expectations set by both domestic and international forecasters.
