UK Economy Growth Falls Short Of Estimates

Britain’s economy expanded less than expected in the final quarter of 2025, official figures released Thursday show, dealing a fresh setback to Prime Minister Keir Starmer’s government as it grapples with political and economic challenges.

Gross domestic product rose by just 0.1 per cent between October and December, according to the Office for National Statistics (ONS). The modest growth was weighed down by weakness in the services sector and construction.

“Gross domestic product expanded 0.1 per cent in the October-December period as the key services sector and construction suffered,” the ONS said in a statement.

Economists had forecast a slightly stronger quarterly increase of 0.2 per cent.

The disappointing figures come at a politically sensitive moment for Starmer, who has recently faced calls to step down over controversy surrounding the Jeffrey Epstein scandal. The prime minister appointed Peter Mandelson as US ambassador despite being aware of his previous links to Epstein, a convicted sex offender.

Since Labour’s general election victory in July 2024, the government has struggled to reignite economic momentum. Two consecutive budgets introduced tax increases to support higher public spending, but growth has remained sluggish. Starmer’s approval ratings have suffered, with opinion polls showing him trailing Nigel Farage’s Reform UK party. Although the next general election is expected in about three years, Labour faces a challenging by-election later this month and important local elections in May.

For the full year, the ONS reported that Britain’s economy grew by 1.3 per cent in 2025, slightly behind the eurozone’s 1.5 per cent expansion.

Responding to the data, Chancellor Rachel Reeves said, “The government has the right economic plan to build a stronger and more secure economy.”

Speaking on Wednesday, Reeves argued that closer ties with the European Union represent the “biggest prize” for Britain’s economic future.

Since leaving the EU earlier in the decade, the UK has worked to strengthen global trade partnerships. Under Starmer’s leadership, Labour has secured new trade agreements, including deals with the United States and India, aimed at stimulating investment and boosting output.

However, the economy faced additional strain last year from US President Donald Trump’s sweeping tariffs on global trade.

Separate ONS figures showed that UK goods exports to the United States fell by 10 per cent in 2025, dropping to £59 billion ($81 billion).

The automotive industry was particularly affected. Vehicle production declined amid tariff-related uncertainty and a cyberattack on Jaguar Land Rover. A US-UK trade agreement that came into force in June reduced tariffs on British car exports from 27.5 per cent to 10 per cent, capped at 100,000 vehicles per year.

The pharmaceutical sector also faced challenges before the US granted tariff exemptions in December under a deal requiring the UK to increase spending on American medicines by 25 per cent.

Despite some easing of tariff tensions, many British firms have delayed major investment decisions due to lingering uncertainty around US trade policy.

Meanwhile, the Bank of England has revised down its growth outlook. It now forecasts GDP expansion of 0.9 per cent in 2026 and 1.5 per cent the following year, compared with earlier projections of 1.25 per cent and 1.6 per cent respectively.

The downgraded forecasts accompanied the central bank’s decision to keep its benchmark interest rate unchanged at 3.75 per cent, as inflation remains above its two-percent target.

Inflation is expected to moderate in the coming months, helped by lower energy bills, although rising water charges and other costs continue to weigh on households. The UK unemployment rate currently stands at 5.1 per cent, close to a five-year high.

Commenting on the outlook, Matthew Ryan, head of market strategy at financial services firm Ebury, said Thursday’s data “will do nothing to alleviate pressure on the deeply unpopular Labour government, there may be faint light at the end of the tunnel.”

He added: “UK inflation is set to fall, and we have yet to see the full transmission of Bank of England interest rate cuts, which should help lower borrowing costs and boost household spending.”