UK Economy Records Modest Growth in December
The UK economy expanded slightly in December 2025, adding pressure on the Bank of England to consider further monetary policy easing in the months ahead.
Figures released by the Office for National Statistics (ONS) showed that UK gross domestic product (GDP) rose by 0.1% in December. This marked a slowdown from the revised 0.2% increase in November, which had previously been reported at 0.3%. November’s stronger reading was partly supported by Jaguar Land Rover’s recovery from a cyber attack that temporarily disrupted production.
Quarterly Growth Remains Weak
On a quarterly basis, the UK economy grew by just 0.1% in the final three months of 2025. This matched the pace recorded between July and September.
For the full year, GDP expanded by 1.0% in 2025. While this signals continued recovery, it remains historically weak and slightly below the 1.1% growth recorded in 2024.
Manufacturing Output Declines
The manufacturing sector weighed on December’s performance. Output fell by 0.5% during the month, reversing the strong 1.9% growth seen in November, which had been revised down from 2.1%.
The earlier surge had been supported by Jaguar Land Rover resuming normal factory operations following last year’s cyber attack. However, the momentum faded in December, contributing to softer overall growth.
Outlook for 2026 and Bank of England Policy
Economists are cautiously optimistic about the near-term outlook. Grant Slade, an economist at Morningstar, noted that the Autumn budget had less impact on economic activity than initially feared. However, he expects growth to slow gradually in 2026, reflecting the Bank of England’s still-restrictive policy stance and softer labor market conditions.
Chancellor Rachel Reeves introduced tax increases in the Autumn budget, although the measures were less severe than markets had anticipated.
The Bank of England left interest rates unchanged at its first meeting of 2026, following six rate cuts since August 2024. The decision was closely divided, with four of the nine Monetary Policy Committee members voting in favor of another cut. This split suggests a strong possibility of further easing at the next meeting in March.
Governor Andrew Bailey emphasized that inflation has fallen significantly from its peak above 10% three years ago. The Bank now expects inflation to return to its 2% target this spring, sooner than previously forecast.
With modest GDP growth, easing inflation, and a divided policy committee, the direction of UK interest rates will remain a key focus for markets in the coming months.
