Britain’s economy looks set to complete the second half of 2025 in positive territory, with only December’s data left to confirm.
GDP rebounded in November after October’s -0.1% dip, and when combined with the third quarter’s 0.1% rise, the second half of the year was weak but not as bad as feared. Growth remains in a low gear, but at least it’s forward.
December could also deliver a modest boost thanks to a post-Budget bounce, festive spending, stronger car production, and a timely Bank of England rate cut adding momentum.
How does 2026 look?
BIGGER PICTURE
Overall, 2025 was lacklustre but far from catastrophic. Growth north of 1%, despite tariff and tax headwinds, showed underlying resilience. However, that strength was front-loaded, and the bigger picture is that the economy is barely ahead of where it stood in June.
For 2026, expect more of the same: a mildly positive first half, then renewed weakness later. Deferred spending and investment may provide an early lift, but without gains in productivity or labour participation – and with the tax burden still weighing on sentiment – the economy is likely to stay stuck in low gear.
JOBS, INFLATION AND INTEREST RATES
Weak growth will keep pressure on a febrile jobs market, where unemployment has moved up to 5.1% and is particularly acute among younger workers.
The silver lining for households is easing inflation. Budget measures such as energy bill relief and rail fare freezes should soften cost-of-living pressures. Headline CPI is forecast to dip below 3% by April and fall further into summer.
As a result, the Bank of England is still expected to deliver at least one more rate cut this year. Combined with earlier reductions, this should ease the burden on borrowers and help bolster consumer confidence and the housing market.
Overall, though, it’s hard to see anything other than a continuation of the weak, underwhelming picture as the year unfolds.
