By William Schomberg
LONDON, March 31 (Reuters) – Britain’s economy barely expanded at the end of 2025, official data confirmed on Tuesday, adding to the challenge for the government to keep growth on track this year with the Iran war likely to push up inflation and hit demand.
Gross domestic product increased by 0.1% in the October-to-December period, the Office for National Statistics said.
Economists polled by Reuters had forecast the reading for gross domestic product in the fourth quarter would be unrevised.
Growth in the third quarter was also confirmed at 0.1%.
“Such a weak economic backdrop makes it more likely that the inevitable jump in CPI inflation in the coming months won’t morph into a long-lasting rise that requires the Bank of England to raise interest rates,” Paul Dales, chief UK economist at Capital Economics, said.
Investors are betting on two, or possibly three, quarter-point rate hikes by the BoE before the end of this year. But most economists polled by Reuters think the central bank will not increase borrowing costs, given the weakness in the economy.
OECD CUT GROWTH FORECAST
Last week the Organisation for Economic Cooperation and Development cut its forecast for British economic growth this year to 0.7% from a previous forecast of 1.2%, the biggest downgrade of any major economy.
That would represent a halving of the pace of growth seen over 2025, which the ONS revised up to 1.4% from a previous estimate of 1.3%.
Prime Minister Keir Starmer and finance minister Rachel Reeves have promised voters that they will speed up the economy, a challenge that looks even bigger against the backdrop of the conflict in the Middle East.
Most of the growth in the last three months of 2025 came from the public sector. Business investment fell.
However, there were some signs in Tuesday’s data that offered analysts some grounds for confidence about the outlook, with households putting more money aside and raising the savings ratio by 0.8 percentage points to 9.9%.
“We think there is still a healthy buffer for consumers to reduce their saving rate and help cushion the blow from higher energy prices over the rest of 2026,” Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said.
The ONS said Britain’s economy in the fourth quarter grew 1.0% from a year earlier – unchanged from an initial estimate – while on a per capita basis, output was 0.1% lower than the year before.
Britain’s current account deficit in the three months to the end of December totalled 18.4 billion pounds ($24.3 billion), compared with a Reuters poll forecast of 23.4 billion pounds and equivalent to 2.4% of GDP, larger than 1.4% in the third quarter. ($1 = 0.7576 pounds)
(Reporting by William Schomberg; editing by Suban Abdulla and Alex Richardson)
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