UK Economy Grows a Little After Budget

The UK economy grew by a small amount, 0.1%, in the last three months of 2025. This growth happened after the government announced its budget. While this is good news, some areas like building are still struggling.
By Newsroom | UK Economy, Business |

The United Kingdom's economy displayed a marginal uptick in growth, hovering around 0.1%, in the period leading up to and immediately following the late November budget. This slight expansion occurred despite prevalent uncertainty among consumers and businesses, which had previously led to reduced spending and delayed investments. The figures, released by the Office for National Statistics (ONS), offer a degree of relief for Chancellor Rachel Reeves, as an improving economic picture is seen as beneficial for the governing Labour party's prospects. However, the data also reveals a picture of fragile recovery, with growth rates falling short of some economists' expectations and pointing to continued weaknesses in key sectors.

Economic Performance Leading to the Budget

In the months preceding the late November budget, various economic indicators suggested a slowdown. Consumer and business surveys pointed to a reduction in activity as speculation mounted regarding potential tax increases.

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  • Household spending was reportedly curtailed.

  • Companies postponed investment decisions.

  • Nervousness around the budget is cited as a factor that likely dampened economic drivers.

The period of concern culminated in economic figures for the three months leading up to September showing growth stalled close to zero, with a 0.1% expansion.

GDP Growth Figures: A Closer Look

Official data from the Office for National Statistics (ONS) provides a detailed view of the UK's economic activity:

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  • September Quarter (July-September 2025): The economy grew by 0.1% over this period.

  • Monthly data for September alone showed a slight contraction, partly attributed to a cyber attack affecting car production.

  • October 2025: Economic activity saw a 0.1% fall.

  • November 2025: A better-than-expected 0.3% growth was recorded.

  • This marked a return to positive territory after the dip in October.

  • Some reports suggest stronger-than-anticipated activity in this month.

  • Fourth Quarter (October-December 2025): The economy increased from a rate of 0.1% growth in the previous three months.

  • Economists had, on average, expected a rise of 0.2% for this quarter.

Read More: UK Economy Grew Very Little at End of 2025

The Office for Budget Responsibility had previously forecast GDP growth of 1.5% for 2025 and 1.4% for 2026.

Impact of Budget Uncertainty

The anticipation and eventual delivery of the budget appear to have had a dual effect on economic sentiment and activity.

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  • Pre-Budget Hesitation: Uncertainty surrounding the budget, particularly regarding potential tax changes, led to a reluctance among consumers to spend and businesses to invest. This hesitation contributed to the stagnation observed in the run-up to the announcement.

  • Post-Budget Clarity (Potential): Following the budget, some commentators suggest that increased certainty about future tax policies may have helped to ease speculation and stimulate a modest rise in spending. However, the extent of this impact is debated, with some industry surveys still pointing to continued weakness.

Sector-Specific Weaknesses

While overall growth figures are being closely watched, certain sectors continue to exhibit signs of strain:

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  • Construction: Month-specific data, such as the construction Purchasing Managers' Index (PMI), has indicated continued weakness across housing, commercial construction, and civil engineering. This suggests a deep decline in these areas.

  • Pharmaceuticals: In contrast, stronger data from the pharmaceutical sector was cited as a reason for the revision of previous estimates for the September quarter.

Expert Commentary

Economists and analysts have offered varying perspectives on the recent economic data:

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  • Some observers believe that improved certainty post-Budget might have stimulated a modest rise in spending, albeit at subdued levels.

  • Conversely, industry surveys like the construction PMI data point to continued weakness.

  • Pantheon Macroeconomics estimated that December might have experienced no growth, although other forecasts suggested a slight upward movement due to November's performance and post-budget clarity.

Economic Outlook and Political Ramifications

The observed economic performance carries significant implications for Chancellor Rachel Reeves and the Labour party.

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  • A Fillip for Reeves: The return to growth, even if marginal, is seen as a positive development for the Chancellor, offering a measure of relief.

  • Labour's Fortunes: The government hopes that an economic turnaround will bolster Labour's electoral standing.

  • Borrowing Costs: UK borrowing costs reportedly dropped to their lowest levels in over a year, potentially linked to hopes for further interest rate cuts from the Bank of England.

  • Future Support: There are expectations that Reeves will announce additional measures, possibly including support for the hospitality industry, following a backlash over business rates changes. The government's broader aim is to reduce the cost of living.

Conclusion

The UK economy has navigated a period of significant uncertainty, culminating in modest growth figures that provide some positive signals. The 0.1% expansion for the September quarter and the stronger 0.3% growth in November indicate resilience, particularly in light of the hesitant sentiment that preceded the late November budget. However, the persistence of weaknesses in key sectors like construction, and the fact that overall growth rates have not consistently met expectations, suggest that the recovery remains delicate. The Chancellor's focus will likely remain on fostering sustainable growth and addressing cost-of-living concerns, with future economic data providing further insights into the impact of her fiscal policies.

Sources

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Frequently Asked Questions

Q: Did the UK economy grow in late 2025?
Yes, the economy grew by 0.1% in the three months leading up to December 2025.
Q: Was the growth strong?
The growth was small. Some people expected more. November saw better growth of 0.3%, but October had a small fall.
Q: How did the budget affect things?
Before the budget, people and businesses were unsure, which slowed things down. After the budget, there was a little more confidence, helping growth in November.
Q: Are all parts of the economy doing well?
No, some areas like building are still facing problems. Other areas, like medicine making, did better.
Q: What does this mean for the government?
This small growth is good for Chancellor Rachel Reeves and the Labour party. They hope the economy will keep getting better.