The UK economy underperformed in the final quarter of 2025, official figures revealed Thursday, adding pressure on Prime Minister Keir Starmer’s government as it grapples with low growth and political headwinds.
Gross domestic product expanded by just 0.1 per cent in the October-December period, the Office for National Statistics (ONS) reported. This fell short of the 0.2 per cent growth forecast by analysts, with weaknesses in the dominant services sector and construction cited as primary factors. For the full year, the UK economy grew by 1.3 per cent, lagging behind the 1.5 per cent expansion recorded in the eurozone.
The data arrives at a delicate time for Starmer, whose Labour Party won power in July 2024 but has struggled to stimulate growth. The government’s strategy has involved raising taxes in successive budgets to fund increased public spending, a policy that has contributed to the prime minister’s deep unpopularity. Polls consistently show his party trailing the right-wing Reform UK, although a national election is not due for several years. Starmer also faces a significant by-election later this month and crucial local elections in May, alongside ongoing scrutiny over his handling of the Jeffrey Epstein scandal and the appointment of Peter Mandelson as US ambassador.
Finance Minister Rachel Reeves maintained the government’s course, stating, “The government has the right economic plan to build a stronger and more secure economy.” She reiterated that deeper integration with the European Union represents the “biggest prize” for UK growth, following a period of re-engagement with the bloc post-Brexit. The government has also pursued new trade deals with partners like the United States and India to spur investment.
However, global trade tensions have hampered progress. Exports of goods to the United States fell by 10 per cent in 2025 to £59 billion, impacted by President Donald Trump’s tariff policies. Vehicle production suffered particularly due to tariff uncertainty and a cyberattack on Jaguar Land Rover. A US-UK trade agreement did reduce car tariffs, but its annual quota limits offer partial relief. A separate deal exempted pharmaceuticals from US tariffs, contingent on the UK increasing procurement of American drugs.
The economic outlook remains subdued. The Bank of England last week lowered its growth projections for 2026 and 2027 to 0.9 per cent and 1.5 per cent, respectively. The central bank also held its benchmark interest rate at 3.75 per cent as inflation persists above its 2 per cent target, though cooling energy bills are expected to ease price pressures soon. Unemployment remains near a five-year high at 5.1 per cent.
While some analysts note that anticipated interest rate cuts and falling inflation could eventually support consumer spending, the immediate prospect for the Starmer government is one of sustained economic challenge and political vulnerability. The latest GDP figures underscore the magnitude of the task ahead in delivering on promises of renewed prosperity.
