UK Economy Limps Through Q4 As Domestic Demand Softens
UK economy remains in need of more (Image HD)
- GDP continued to grow slowly over the fourth quarter - Manufacturing drives growth as services stagnate - Business investment drops, net trade drags - Weak backdrop keeps March rate cut firmly in view
LONDON – Preliminary data from the Office for National Statistics showed the UK economy recorded only modest expansion over the final three months of 2025.
In the three months to December, GDP rose 0.1%, matching the pace seen in Q3 but undershooting the 0.2% consensus estimate. Output was 1.0% higher than a year earlier, down from 1.2% in the previous quarter.
Liz McKeown, ONS director of economic statistics, 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.”
A breakdown of output showed that quarterly growth was driven by a 1.2% increase in production. The absence of any meaningful rebound in business investment was flagged as a concern by analysts, with government spending appearing to shoulder much of the burden.
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “Government consumption rose by 0.4% q/q in Q4. By contrast, consumer spending increased by a sluggish 0.2% q/q. Net trade subtracted 0.5 percentage points from GDP growth. Business investment slumped by 2.7% q/q, and the weakness in business sentiment suggests it won’t rebound strongly in the near term.”
Real GDP per head fell for a second consecutive quarter, following six prior quarters of growth. However, it remained 0.6% higher than the same quarter a year earlier.
On the month, GDP grew 0.1% in December, in line with expectations but a tenth slower than November’s downwardly revised print. Services output rose 0.3%, partially offset by declines of 0.9% in production and 0.5% in construction.
Source: Office for National Statistics
Implications for monetary policy
Last week, the Bank of England left interest rates unchanged, as widely anticipated. However, the decision was passed by a narrow 5-4 majority.
The accompanying statement reiterated that policy remains shaped by two opposing forces: the risk that the period of high inflation has embedded more persistent wage and price pressures, and the countervailing risk that weakening labour demand and subdued household spending could push inflation below the 2% target.
ING’s James Smith said the latest GDP data were unlikely to shift the near-term policy calculus. “The Bank had already acknowledged that the fourth quarter looked weak. If the recent weakness in hiring and unemployment, coupled with rapid falls in wage growth, persists over the next couple of readings, then we think a March rate cut is highly likely. We expect another cut in June.”
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- GDP continued to grow slowly over the fourth quarter
- Manufacturing drives growth as services stagnate
- Business investment drops, net trade drags
- Weak backdrop keeps March rate cut firmly in view
By Harry Daniels
LiveSquawk News
@HarryDaniels71
12 February 2026 | 12:30 GMT
LONDON – Preliminary data from the Office for National Statistics showed the UK economy recorded only modest expansion over the final three months of 2025.
In the three months to December, GDP rose 0.1%, matching the pace seen in Q3 but undershooting the 0.2% consensus estimate. Output was 1.0% higher than a year earlier, down from 1.2% in the previous quarter.
Liz McKeown, ONS director of economic statistics, 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.”
A breakdown of output showed that quarterly growth was driven by a 1.2% increase in production. The absence of any meaningful rebound in business investment was flagged as a concern by analysts, with government spending appearing to shoulder much of the burden.
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “Government consumption rose by 0.4% q/q in Q4. By contrast, consumer spending increased by a sluggish 0.2% q/q. Net trade subtracted 0.5 percentage points from GDP growth. Business investment slumped by 2.7% q/q, and the weakness in business sentiment suggests it won’t rebound strongly in the near term.”
Real GDP per head fell for a second consecutive quarter, following six prior quarters of growth. However, it remained 0.6% higher than the same quarter a year earlier.
On the month, GDP grew 0.1% in December, in line with expectations but a tenth slower than November’s downwardly revised print. Services output rose 0.3%, partially offset by declines of 0.9% in production and 0.5% in construction.
Last week, the Bank of England left interest rates unchanged, as widely anticipated. However, the decision was passed by a narrow 5-4 majority.
The accompanying statement reiterated that policy remains shaped by two opposing forces: the risk that the period of high inflation has embedded more persistent wage and price pressures, and the countervailing risk that weakening labour demand and subdued household spending could push inflation below the 2% target.
ING’s James Smith said the latest GDP data were unlikely to shift the near-term policy calculus. “The Bank had already acknowledged that the fourth quarter looked weak. If the recent weakness in hiring and unemployment, coupled with rapid falls in wage growth, persists over the next couple of readings, then we think a March rate cut is highly likely. We expect another cut in June.”