UK Economy Stalls in Fourth Quarter as Budget Uncertainty Hits Investment

Britain’s economy recorded only marginal growth in the final quarter of 2025, undershooting expectations as uncertainty ahead of the autumn budget weighed on business confidence and investment, according to official data.

Gross domestic product expanded by 0.1 percent in the October to December period, matching the pace seen in the third quarter, the Office for National Statistics said. Economists had expected growth of 0.2 percent, while the Bank of England had also projected a slightly stronger performance.

The final months of the year were marked by intense speculation over potential tax increases before Chancellor Rachel Reeves presented her budget on November 26. Revised data showed that the economy actually contracted by 0.1 percent in the three months to November, rather than growing by 0.1 percent as previously estimated, highlighting the fragility of activity during that period.

Business investment fell by nearly 3 percent in the fourth quarter compared with the previous three months, the sharpest quarterly decline since early 2021. Analysts said the drop was largely driven by volatile transport related spending but reflected broader caution among companies amid fiscal uncertainty.

Thomas Pugh, economist at consultancy RSM, said the weakness in investment suggested that speculation around the budget had delayed corporate spending decisions. Firms appeared reluctant to commit to expansion plans while awaiting clarity on tax and regulatory changes.

Manufacturing provided the main support to output during the quarter, even as car production continued to recover from a cyber attack on Jaguar Land Rover earlier in the year. In contrast, the dominant services sector was flat and construction output contracted by 2.1 percent, adding to concerns about underlying momentum.

Monthly figures showed that the economy grew by 0.1 percent in December alone, in line with expectations. That left the overall size of the economy roughly where it had been in June 2025, underlining the lack of sustained growth in the second half of the year.

For 2025 as a whole, the UK economy expanded by 1.3 percent on an annual basis, outperforming several major European peers. France recorded growth of 0.9 percent, Italy 0.7 percent and Germany 0.4 percent. However, output per head in Britain fell by 0.1 percent for a second consecutive quarter, although it rose by 1 percent across the full year.

Recent business surveys have hinted at a possible improvement in sentiment following the budget, with some economists suggesting that clearer fiscal policy could support a rebound in activity in early 2026. However, fresh political uncertainty in Westminster has clouded the outlook and could weigh on confidence again.

The latest figures reinforce expectations in financial markets that the Bank of England may consider cutting interest rates as soon as March, as policymakers assess weak growth alongside moderating inflation pressures.