Weak Investment and Spending Keep UK Growth at 0.1% -The United Kingdom recorded sluggish economic growth of just 0.1% in the final quarter of last year, as falling business investment and subdued household spending left activity largely flat heading into 2026.
According to the latest figures from the Office for National Statistics (ONS), output between October and December increased at the same muted pace seen in the previous quarter. The reading was below economists’ forecasts of a 0.2% rise, reinforcing concerns that the recovery is losing momentum.
The data indicate that while the economy avoided contraction, it remains stuck in a pattern of minimal expansion. Analysts said the fourth-quarter performance highlights the lack of a strong growth engine, with both corporate and consumer activity failing to provide meaningful impetus.
Business investment declined during the quarter, reflecting continued caution among firms navigating higher borrowing costs and uncertain demand conditions. Elevated interest rates over the past two years have increased financing costs, prompting many companies to postpone or scale back capital expenditure plans. The weakness in investment is particularly troubling given its importance for improving productivity and supporting longer-term growth.
Consumer spending, which accounts for a substantial share of economic output, also remained restrained. Although inflation has eased from earlier highs, many households continue to face pressure on real incomes. Higher mortgage payments and living costs have encouraged consumers to prioritise essentials and rebuild savings rather than increase discretionary purchases.
Retailers and hospitality operators reported uneven trading conditions during the quarter, with demand for non-essential goods and services remaining fragile. While some segments of the services sector showed modest resilience, overall activity lacked the strength needed to lift growth meaningfully.
Manufacturing output stayed under pressure amid weaker global demand and lingering structural challenges. Exporters faced a subdued international backdrop, while domestic producers grappled with soft orders. Construction activity also showed signs of strain, particularly in commercial property and housing, as tighter financial conditions weighed on new projects.
The back-to-back quarters of 0.1% growth suggest the economy is effectively treading water. On an annual basis, expansion remains modest by historical standards, underscoring a broader trend of weak productivity gains and limited business dynamism that has characterised recent years.
Economists noted that the combination of falling investment and hesitant consumer spending leaves the economy vulnerable to shocks. Without a rebound in either area, prospects for a stronger start to 2026 appear limited.
“There is little evidence of a sustained pickup in activity,” one economist said. “The economy is expanding, but only marginally, and that leaves it exposed if conditions deteriorate.”
The subdued growth figure may also complicate the policy landscape. Slower expansion could weigh on tax revenues, potentially narrowing the government’s fiscal room for manoeuvre. At the same time, policymakers must balance the need to support growth against the risk of reigniting inflationary pressures.
Financial markets are likely to scrutinise upcoming data releases for signs of either improvement or further softening. If inflation continues to moderate and growth remains weak, expectations could build for interest rate cuts later in the year. However, decision-makers are expected to proceed cautiously, mindful of the delicate balance between supporting demand and maintaining price stability.
Looking ahead, much will depend on business confidence and household sentiment. A clearer improvement in real incomes, alongside greater certainty about the economic outlook, could help unlock pent-up spending and investment. External developments — including global trade performance and geopolitical stability — will also play a significant role in shaping the UK’s economic path.
For now, the fourth-quarter figures paint a picture of an economy moving forward only incrementally. While recession has been avoided, the lack of momentum underscores the scale of the challenge facing the UK as it seeks to build a more robust and sustainable recovery in 2026.
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