UK GDP Q4 2025: Economy Slows to 0.1% — Chancellor Sees Stronger 2026

Executive summary

UK GDP growth slowed to 0.1% in Q4 2025, leaving annual growth at 1.3% for 2025. Services — roughly 75–80% of the economy — showed zero growth in the quarter, while production rose 1.2% and construction contracted 2.1%. The Office for National Statistics (ONS) monthly series recorded December +0.1% after November was revised down. The FTSE 100 briefly hit a record above 10,500 amid the release. The Chancellor has signalled confidence that growth will be stronger in 2026.

Key takeaways

• Q4 2025 GDP (q/q): +0.1% (monthly December: +0.1%).
• Annual GDP 2025: +1.3% (below earlier official forecasts of c.1.5%).
• Sector drivers: production +1.2%; construction -2.1%; services = 0% growth.
• Business investment: +3.5% for 2025 overall but declined in Q4.
• Mortgage arrears: 80,490 homeowner mortgages in arrears (≥2.5% balance), representing 0.92% of homeowner stock; buy-to-let (BTL) arrears 9,520 (0.5%).
• Near-term forecasts: NIESR projects Q1 2026 GDP growth of +0.3%.
• Energy and global context: IEA cut global oil demand growth forecast for 2026 to +850,000 bpd.
• Corporate and market moves: BAT launched an AI-driven productivity programme that will affect staffing and operations; FTSE 100 briefly topped 10,500.

Detailed breakdown: what the numbers reveal

Output and monthly flow

• Q4 2025 GDP grew by 0.1% quarter-on-quarter, the same rate recorded in the prior three months.
• December monthly output was +0.1%, down from a revised +0.2% in November (initially reported as +0.3%).
• Annual growth for 2025 reached +1.3%, up from +1.1% in 2024 but short of consensus forecasts of around +1.5%.

Sector contributions (Q4 2025)

• Services: accounted for the largest share of GDP (c.75–80%) but delivered no net growth in Q4, with mixed performance across sub‑sectors. Eight of 14 services subsectors contributed positively; the largest positives were administrative & support services (+1.2%), public administration & defence (+0.5%), information & communication (+0.4%) and health & social care (+0.2%). The largest drag was professional, scientific & technical activities (-1.1%).
• Production: rose by +1.2%, supported in part by automotive output recovering from earlier disruptions.
• Construction: contracted by -2.1%, its largest quarterly fall in four years and the main negative contributor to headline growth.

Investment, consumption and labour

• Business investment rose +3.5% across 2025 but fell in Q4, signalling uneven progress on the productivity agenda.
• Consumer spending showed modest recovery late in the year as real wages began to recover, but household disposable income fell over the year in real terms.
• Mortgage distress metrics improved slightly: homeowner arrears down 4% quarter-on-quarter; BTL arrears down 9%.

Policy and market implications

• Monetary policy: Bank of England rates were left at 3.75% at the most recent meeting. Commentary from policymakers suggests cuts are now plausible in upcoming meetings, with market pricing increasingly sensitive to forward guidance.
• Fiscal policy and growth strategy: the Chancellor has pointed to rate cuts, expected energy bill reductions and planning/infrastructure reforms as drivers to support stronger 2026 growth. Treasury policy choices in the Spring Statement will be watched for their effect on business sentiment and investment.
• Equity markets: the FTSE 100 briefly set a record above 10,500 before a modest pullback on the GDP release; stronger 2026 growth expectations would be supportive for cyclicals and corporate earnings.
• Corporate restructuring and technology: BAT (ticker: BAT) announced an AI productivity programme that will simplify operations and affect staffing levels; AI adoption is a structural theme for cost efficiency across FTSE-listed companies.

Outlook for 2026: cautious improvement

• Short-term: forecasters at NIESR project Q1 2026 GDP growth of +0.3%, signalling a modest reacceleration from the Q4 reading. Forward-looking business surveys suggest improved sentiment after months of policy uncertainty.
• Medium-term: lower interest rates and targeted fiscal measures can boost demand, but a durable recovery will likely require renewed business investment and a rebound in services momentum. Any material bounce will also depend on savings ratio dynamics and real income trends.

What investors and traders should watch next

• Q1 2026 GDP releases and monthly ONS short-term indicators for early signs of services reacceleration.
• Bank of England statement and meeting minutes for timing of rate cuts and updated inflation path.
• Business investment and capex surveys, which are key to long-run productivity and equity market valuations.
• Mortgage arrears trends and housing market indicators for financial stability signals (homeowner and BTL arrears rates remain low versus previous crises).
• Corporate adoption of AI (ticker: BAT and peers) and any announced restructuring that affects labour markets and productivity statistics.
• Global energy outlook and IEA updates, which can influence UK inflation and fiscal headwinds.

Bottom line

The UK exited 2025 in the slow lane with a weak Q4 print but retains upside if policy measures restore confidence and lower borrowing costs. For professional traders and institutional investors, the near-term story is one of slow, uneven recovery with clear sectoral divergence: production showed resilience, construction weakened materially, and services remain central to any sustained uptick in growth.