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The UK economy experienced a modest expansion of just 0.1% in the last quarter of 2025, marking a subdued finish to the year. According to the Office for National Statistics (ONS), this slight growth fell short of expectations and was primarily driven by an uptick in manufacturing output. Meanwhile, the vital services sector, which comprises over 80% of the nation’s economic activity, stagnated, seeing no growth for the first time in more than two years.
The construction industry faced a particularly difficult period, recording its most significant quarterly decline in four years. Construction output decreased by 2.1% during the final months of 2025, largely due to reductions in repair, maintenance, and new building projects. Notably, new private housing witnessed the third-largest drop among the construction subsectors, making a substantial contribution to the overall contraction given its large share of construction activity. Despite some positive performances in parts of the services sector — including travel agencies, tour operators, and administrative support — other areas such as professional, scientific, and technical services saw a downturn, shrinking by 1.1%.
Chancellor Rachel Reeves emphasized that the government’s policies had laid the foundation for potential interest rate cuts by the Bank of England and positioned the UK as the fastest growing economy in the G7. She said, “The government has the right economic plan to build a stronger and more secure economy.” However, opposition figures were critical, with shadow chancellor Sir Mel Stride claiming that Labour’s stewardship has “weakened our economy.” The Liberal Democrats also condemned the government’s fiscal approach, arguing that the first two Budgets under Reeves had “killed off the economic recovery our country so desperately needs.” Meanwhile, the British Chambers of Commerce highlighted that the business sector was burdened by uncertainty, inflation, and rising taxes, especially pointing to increased employer National Insurance contributions as a factor pushing up hiring costs.
On a more personal note, entrepreneurs like Nigel Day, who runs a heat pump installation business in Ipswich, have felt the effects of economic uncertainty firsthand. He explained that hesitancy around the November Budget made customers reluctant to spend, and rising minimum wages have forced him to avoid hiring young workers or apprentices. His comments illustrated how businesses have struggled to adapt amid the challenging economic climate. Recent decisions by the Bank of England to hold interest rates steady—while lowering growth forecasts for 2026—have led to speculation about possible rate cuts in the coming months. Still, experts remain divided: some anticipate a rate cut in March, while others suggest policymakers will wait for clearer signs of inflation easing before making any moves
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