Did the UK Economy Really Grow by 0.1% in Q4 of 2025?

The latest figures indicate that the UK economy grew by 0.1% in the final quarter of 2025, which is slightly below expectations. While the manufacturing sector provided some support, the services sector stalled for the first time in two years, and construction experienced its worst performance in four years. This mixed picture raises questions about the economic momentum going forward and reflects ongoing challenges within key sectors.

Last updated: 25 October 2023 (BST)

What’s happening now

The Office for National Statistics (ONS) has reported that the UK economy's growth rate for the last quarter of 2025 was a modest 0.1%. This growth is primarily attributed to the manufacturing sector, which has shown resilience in challenging circumstances. However, the services sector, which is usually a mainstay of the economy, did not grow at all during this period, marking a significant shift in economic dynamics. Moreover, the construction industry has faced serious setbacks, with activity decreasing by 2.1%, reflecting a downturn in both new projects and maintenance work.

Key takeaways

The UK economy grew by just 0.1% in Q4 2025, lower than expected.
The services sector registered no growth for the first time in two years.
Construction activity fell by 2.1%, marking its worst performance in four years.

Timeline: how we got here

Understanding the journey of the UK economy involves looking back at key milestones:

Q4 2024: The economy had shown growth of 0.3%, leading to expectations of continued improvement.
1 January 2025: The Bank of England projected a growth rate of 1.4% for 2025.
April 2025: Early signs of slowing growth emerged, particularly in services and construction.
Q4 2025: ONS reports a growth of only 0.1% for the quarter, disappointing many economists.

What’s new vs what’s known

New today/this week

The most recent data highlights that the services sector has not grown at all, which is a first in two years. This stagnation is particularly concerning given that services typically drive the UK's economic performance. Furthermore, the construction sector's decline has raised alarms about future infrastructure and housing projects.

What was already established

Previously, the Bank of England had projected stronger growth for 2025 at 1.4%. However, as the economy has shown signs of slowing, these expectations have been revised downwards. The earlier optimistic forecasts are now overshadowed by the latest figures indicating a lack of momentum across several sectors.

Impact for the UK

Consumers and households

The stagnation in the services sector and the decline in construction can have direct repercussions for UK households. Consumers may face rising prices in the housing market due to a slowdown in new housing developments, alongside potential increases in unemployment rates, which are now forecasted to rise to 5.3% this year.

Businesses and jobs

Businesses in the construction sector are likely to face greater challenges, with fewer projects being initiated. This could lead to layoffs or reduced hours for workers in that industry. The slowdown in the services sector may also impact jobs related to travel and professional services, despite some areas showing strength.

Policy and regulation

The government and the Bank of England are under pressure to respond to these economic challenges. Chancellor Rachel Reeves has indicated that the government's economic plan is designed to stabilise and spur growth, while shadow chancellor Sir Mel Stride has criticized the current administration for failing to address the issues effectively. The Bank of England's recent forecast adjustments suggest that monetary policy may need to adapt to these new economic realities.

Numbers that matter

0.1% growth in the UK economy for Q4 2025, compared to expectations of 0.3%.
1.3% overall economic growth for 2025, up from 1.1% in 2024 but below the Bank of England's forecast of 1.4%.
2.1% decline in construction activity during the last quarter of 2025.
5.3% projected unemployment rate for 2026, up from an initial forecast of 5%.

Definitions and jargon buster

GDP (Gross Domestic Product): The total value of all goods and services produced in a country during a specific period, used as a measure of economic performance.
ONS (Office for National Statistics): The UK’s largest independent producer of official statistics and the recognised national statistical institute.
Bank of England: The central bank of the UK, responsible for issuing currency and setting monetary policy.

How to think about the next steps

Near term (0–4 weeks)

In the immediate future, businesses should prepare for potential shifts in consumer spending habits, particularly in services. Monitoring further announcements from the Bank of England regarding interest rates and economic forecasts will be crucial for strategic planning.

Medium term (1–6 months)

As we move further into 2026, businesses need to keep an eye on potential recovery signs within the construction sector, which may begin to rebound. Additionally, any shifts in government policy aimed at enhancing economic performance will be important for long-term planning.

Signals to watch

Updates from the Bank of England regarding interest rates and economic forecasts.
Labour market statistics, especially changes in unemployment rates.
Reports on construction activity and new project initiations.

Practical guidance

Do

Stay informed about economic indicators and forecasts from reliable sources.
Consider diversifying investments to mitigate risks associated with economic downturns.
Prepare for changes in consumer behaviour as economic conditions evolve.

Don’t

Don’t ignore the potential impacts of rising unemployment on consumer spending.
Don’t underestimate the significance of the services sector in economic recovery.
Don’t make drastic business decisions without considering economic forecasts.

Checklist

Review your business’s exposure to the construction sector.
Assess your financial health in light of potential economic downturns.
Monitor key economic indicators for signs of recovery or further decline.
Engage with industry networks to share insights and strategies.
Stay updated on government policy changes that may affect your sector.

Risks, caveats, and uncertainties

It is important to note that these figures are subject to revision as more data becomes available. The forecasts from the Bank of England may also change depending on inflation trends and global economic conditions. Furthermore, the criticisms from opposition parties highlight the ongoing political debates about economic management, which could influence future policy decisions.

Bottom line

The current state of the UK economy illustrates a complex picture of stagnation in key sectors, particularly in services and construction. While there is a slight overall growth, the challenges ahead are significant. Stakeholders must remain vigilant and adaptable as they navigate these uncertain economic waters.

FAQs

What is the current growth rate of the UK economy?

The UK economy grew by 0.1% in the final quarter of 2025, which is below expectations and indicates sluggish growth overall.

How has the construction sector performed recently?

The construction sector faced a decline of 2.1% in activity during the last quarter of 2025, marking its worst performance in four years.

What are the unemployment forecasts for the UK?

The Bank of England has revised its unemployment forecast for 2026 up to 5.3%, indicating a potential increase in joblessness as economic conditions evolve.