Chancellor Rachel Reeves has said there is “more to do” after the UK economy recorded a sluggish end to 2025.
Figures from the Office for National Statistics (ONS) showed the economy grew by just 0.1% in the final three months of the year, coming in slightly below economists’ expectations.
The ONS said growth towards the end of the year remained “subdued”. Reeves, however, pointed to the wider picture, noting that the economy expanded by 1.3% across the whole of 2025, beating earlier forecasts. The Conservatives responded by accusing Labour of having “weakened our economy”.
Growing the economy has been Labour’s top priority since taking office. But the ONS reported no growth in the crucial services sector during the final quarter — the first time this has happened in two years. The modest rise in GDP was instead driven by manufacturing output.
Construction had a particularly difficult period, with the sector posting its worst quarterly performance in four years. According to the ONS, activity fell by 2.1% over the final quarter, reflecting declines in repair and maintenance work and fewer new projects getting underway.
Reeves said 2026 would be the year people begin to feel the benefits of Labour’s economic changes. Speaking to reporters, she said the UK had been the fastest-growing economy among the European members of the G7 in 2025.
“Crucially, GDP per head of the population has increased over the last year after falling in the previous parliament,” she said.
“Is there more to do? Absolutely. But we’ve created the conditions for growth and I am confident this will be the year we see the results of that.”
The ONS estimated full-year growth at 1.3% in 2025, up from 1.1% the previous year, but still below the Bank of England’s 1.4% forecast. In December alone, the economy grew by 0.1%, while November’s growth figure was revised down from 0.3% to 0.2%.
Within construction, new private housing recorded the third-largest drop in output among the nine construction sectors in the three months to December. However, the ONS said it was the biggest overall contributor to the decline in construction output because of its large share of total activity.
The services sector, which accounts for around 80% of the UK economy, saw its biggest drag from professional, scientific and technical activities. This was followed by education, arts, entertainment and recreation, and financial services. Growth in administrative services, including travel agencies and tour operators, alongside IT, helped offset some of the weakness, leaving the sector flat overall.
The economy also received a boost from Jaguar Land Rover after the carmaker resumed production following a major cyberattack. However, uncertainty in the run-up to November’s Budget — particularly speculation around tax changes — led some businesses to delay investment.
Liz McKeown, the ONS director of economic statistics, told the BBC’s Today programme that the picture as 2025 ended was still one of “subdued growth”.
Ruth Gregory, chief UK economist at Capital Economics, described the figures as “disappointing” and said they showed the economy still had “very little momentum”.
Reeves again highlighted the full-year performance, saying forecasters had expected growth of around 1% at the start of 2025, while the economy ultimately grew by 1.3%.
Shadow chancellor Sir Mel Stride disagreed, saying the figures showed a government that had “taken their eye off the ball”.
The Liberal Democrats said Reeves’ first two Budgets had “killed off the economic recovery our country so desperately needs”.
The British Chambers of Commerce said 2025 had been marked by uncertainty and rising costs for businesses, with surveys showing taxes and inflation as their biggest concerns.
Business leaders have repeatedly raised concerns about the rising tax burden, particularly the increase in employer National Insurance contributions, which has pushed up the cost of hiring.
Nigel Day, who runs a heat pump installation business in Ipswich, said uncertainty around November’s Budget had made customers hesitant to spend. He said rising costs had forced difficult decisions.
“Increases to the minimum wage have meant that we’ve not been able to employ youngsters into the business — they’re too expensive to have just as an extra pair of hands,” he said. “And we’ve had to refrain from taking any apprentices.”
Last week, the Bank of England kept interest rates unchanged after a narrow vote, but cut its growth forecast for this year to 0.9%, down from 1.2%. It also raised its unemployment forecast from 5% to 5.3%.
These changes fuelled expectations of an interest rate cut in the coming months. Rob Wood, chief economist at Pantheon Macroeconomics, said the latest figures would do little to stop those calling for a cut in March, though he added it would likely be the last cut of the current cycle.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said a March rate cut was “doubtful”, arguing that the slight increase in economic output would give policymakers confidence to wait for clearer signs that inflation is slowing.
