The UK economy is expected to have grown modestly during the final quarter of 2025, with ongoing concerns about budget uncertainty weighing on overall performance. According to economists, the economy likely expanded by 0.1% in the three months leading to December, following a challenging period marked by mixed economic signals. As businesses and consumers adjusted to a shifting economic landscape, uncertainty over the government’s fiscal policy has played a significant role in dampening growth expectations.
Despite these concerns, some analysts have suggested that the final quarter’s growth could have been slightly higher due to stronger-than-anticipated activity in November. This comes after a more upbeat recovery in the manufacturing sector, particularly with the resurgence of production at Jaguar Land Rover following a major cyberattack. However, December data is expected to show a slowdown, with little to no growth anticipated for the month.
Impact of Budget Uncertainty on Economic Performance
Throughout the second half of 2025, the UK’s economic performance was affected by ongoing concerns surrounding the autumn Budget. As businesses waited for clarity on fiscal policy, particularly in relation to tax and spending plans, this uncertainty appears to have had a lasting impact. Industry surveys, particularly from the construction sector, indicated that December saw a continuation of weak data, with the PMI data for the month reflecting sharp declines in housing, commercial construction, and civil engineering.
Despite this, some economists argue that the economy did experience a modest uptick toward the end of the quarter, driven by improved clarity following the autumn Budget. According to Victoria Scholar, head of investment at Interactive Investor, the budget’s resolution may have helped lift business confidence and consumer spending. “It is likely that economic activity picked up after the budget once that cloud of uncertainty shifted to the rear view mirror in December,” she explained. This improvement was particularly evident in consumer sectors such as retail, food and beverage, and hotels, with higher levels of spending around the festive period.
Sectoral Performance and Growth Outlook
While the broader picture of UK economic growth remains subdued, specific sectors showed signs of resilience, particularly the services sector. The growth of consumer spending in the lead-up to Christmas provided a slight boost to the economy, with the services sub-sectors benefiting from increased demand in areas such as hospitality and retail.
Robert Wood, chief UK economist at Pantheon Macroeconomics, highlighted that these signs of improvement in December could potentially push GDP growth to 0.2%. However, he maintained his estimate of 0.1% growth for the quarter, noting that the overall trend of slow growth persisted.
Looking at the manufacturing sector, the recovery at Jaguar Land Rover played a key role in the November data, as production rebounded after the cyberattack. However, by December, overall manufacturing activity was less positive, contributing to the muted final quarter performance. In contrast, the services sector’s relatively stronger performance suggests that consumer confidence may have been bolstered by the end of the year, despite broader economic challenges.
As the UK’s economy enters 2026, growth expectations remain cautious. The Bank of England has lowered its forecasts for the year ahead, with predictions now pointing to a 0.9% growth rate in 2026. While the economy recorded modest growth at the end of 2025, its recovery remains fragile, with ongoing concerns over budget uncertainty and weak performance in certain sectors.
