UK economy grows by 0.1% despite uncertainty over Reeves’s budget

The UK economy expanded by 0.1% in the final three months of last year, according to official data, despite signs that tax speculation around Rachel Reeves’s budget had dampened spending.Figures from the Office for National Statistics (ONS) show that the economy grew at the same rate of 0.1% as the previous three months. Economists had been expecting a rise of 0.2%.The economy grew by 1.3% in 2025, an improvement on growth of 1.1% in 2024. The ONS said it grew by 0.1% on a monthly basis in December, slowing from 0.2% in November – a figure that was revised down from 0.3%.The rise came despite there being no growth at all in the dominant services sector, which makes up about 80% of the economy. Growth in the economy was instead driven by the production sector, up by 1.2%, while the construction industry shrank 2.1%.Liz McKeown, the director of economic statistics at the ONS, said: “The economy continued to grow slowly in the last three months of the year, with the growth rate unchanged from the previous quarter.“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.”The smaller-than-expected rise came after consumer and business surveys suggested economic activity had slowed in the run-up to the late November budget, as households held off spending and companies delayed investment decisions amid speculation that the chancellor would implement significant tax rises.The data is a fillip for Reeves, who hopes an economic turnaround will help Labour’s fortunes.The UK economy fared relatively well in the first half of 2025, with growth of 0.7% in the first quarter and 0.3% in the second quarter. However, economic output was then hit by the cyber-attack on Britain’s biggest carmaker, Jaguar Land Rover, which depressed vehicle production and led to the minimal growth in the third quarter.The Office for Budget Responsibility had forecast GDP growth to be 1.5% in 2025 and 1.4% in 2026. The government’s official forecaster expects the economy to grow at annual pace of 1.5% up to 2030, partly because of low productivity growth.Bank of England policymakers left interest rates unchanged at 3.75% last week but indicated that lower inflation as a result of cost of living measures in Reeves’s budget should pave the way for cuts in the months ahead.Reeves, who on Wednesday insisted Labour could win the political argument for a closer relationship with the EU, said: “The government has the right economic plan to build a stronger and more secure economy, cutting the cost of living, cutting the national debt and creating the conditions for growth and investment in every part of the country.”