UK economy grows only 0.1% in final 2025 quarter as public sector drives output; Iran war, inflation risks, and weak investment weigh on growth outlook, reports Asian Lite Newsdesk
Britain’s economy barely grew in the final months of 2025, official figures revealed on Tuesday, underscoring mounting challenges for the government amid rising global uncertainty.
Data from the Office for National Statistics showed gross domestic product expanded by just 0.1% between October and December, matching growth in the third quarter. On an annual basis, output rose 1.0%, unchanged from initial estimates, while per capita output fell 0.1%, Reuters reported.
Most of the limited growth stemmed from the public sector, as business investment contracted and consumer spending remained cautious. Households, however, increased their savings, pushing the savings ratio up 0.8 percentage points to 9.9%, providing a modest buffer against higher energy costs and potential inflation shocks.
“This weak economic backdrop suggests that any jump in CPI inflation in the coming months is unlikely to trigger sustained interest rate hikes from the Bank of England,” said Paul Dales, chief UK economist at Capital Economics.
Investors have factored in the possibility of two or three quarter-point rate increases by the BoE later in 2026. But a Reuters poll of economists indicated that most expect the central bank to hold borrowing costs steady, given the underlying fragility of growth.
The Organisation for Economic Co-operation and Development last week downgraded its UK growth forecast for 2026 to 0.7% from 1.2%, marking the largest revision among major economies. The slowdown comes on the back of 2025 growth revised up slightly to 1.4%, but well below historical averages.
Prime Minister Keir Starmer and Finance Minister Rachel Reeves have pledged to accelerate the economy, a target made more difficult by the ongoing conflict in the Middle East, which is expected to push energy prices higher and dampen demand.
Britain’s current account deficit widened to £18.4 billion ($24.3 billion) in the final quarter of 2025, equivalent to 2.4% of GDP, surpassing the third quarter’s 1.4% and reflecting the impact of global trade imbalances. The deficit was smaller than the £23.4 billion predicted in a Reuters poll.
