UK economy subdued at end of 2025 as budget uncertainty weighed on businesses and consumers

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Rachel Reeves

Britain’s Chancellor of the Exchequer Rachel Reeves leaves 11 Downing Street for the House of Commons in London, Wednesday, Feb. 4, 2026. (AP Photo/Alastair Grant)

PAN PYLAS

Thu, February 12, 2026 at 7:44 PM GMT+9 2 min read

LONDON (AP) — The British economy barely grew in the final three months of 2026, official figures showed Thursday, with critics blaming uncertainty surrounding the government’s budget for lower than anticipated business investment and consumption.

The Office for National Statistics said the British economy, the world’s sixth-largest by many measures, expanded by only 0.1% on a quarterly basis, the same rate as that recorded in the third quarter.

The economy grew by 1.3% over the year as a whole, up from 1.1% the previous year. It’s the highest annual level of growth since 2022.

Economists said uncertainty ahead of the Labour government’s budget in late November meant businesses and consumers took a wait-and-see approach.

For much of the period, there had been expectations that Treasury chief Rachel Reeves would break key promises not to raise income tax levels. In the end, the tax rises were far more modest than anticipated.

“The underwhelming final quarter caps off another disheartening year for the U.K. economy with growth tailing off unnervingly quickly after the strong start to 2025, as rising taxes, heightened uncertainty and poor productivity increasingly squeezed activity,” said Suren Thiru, economics director at accounting body ICAEW.

Some recent economic indicators have pointed to a pickup in growth in the early part of 2026. However, growth is not expected to rise dramatically over the full year. Last week, the Bank of England cut its growth forecasts for the next two years, from 1.2% to 0.9% for 2026, and from 1.6% to 1.5% for 2027.

Britain’s Labour government, which has lost significant support since it won the general election in 2024 partly because of the economy, is hoping that with growth tepid and with inflation expected to fall sharply this year, the Bank of England will cut its main interest rate by a further quarter of a percentage point in March to 3.50%. Last week, the bank kept it unchanged at 3.75%.

“The task for 2026 is for the government to double down on its growth agenda to build a sustained economic recovery that will eventually flow into people’s pay packets," said Simon Pittaway, senior economist at the think tank Resolution Foundation.

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