The UK economy is losing momentum after official figures showed growth was weaker than first thought, raising the “spectre of recession”.
Economists warn the slowdown could intensify next year, with growth expected to weaken further in 2026 as pressures on businesses and households persist.
The government is facing growing warnings about a possible recession after the UK economy slowed sharply in the second half of 2025.
Figures released on Monday by the Office for National Statistics showed growth in the second quarter was revised down to just 0.2 per cent, from an earlier estimate of 0.3 per cent.
Growth slowed further in the third quarter, with the economy expanding by only 0.1 per cent between July and September.
The slowdown was partly driven by weaker manufacturing output after a cyber attack disrupted production at Jaguar Land Rover. The ONS indicated these figures illustrated an economy losing momentum as the year progressed.
Lindsay James, investment strategist at Quilter, said the data “all but confirms what has become very clear in the second half of the year the UK economy is grinding to a halt and showing little sign of achieving what it did in the first half of the year.”
The figures represent a significant setback for Labour, which pledged that boosting economic output would be its “defining mission.”
Chancellor Rachel Reeves, who built her political standing on promises to unleash growth, faces particular scrutiny.
Real GDP per head is estimated to have shown no growth in the latest quarter following six consecutive quarters of positive growth
|
ONS
The Office for Budget Responsibility concluded that her November Budget, which increased taxes by £26billion, would have zero impact on growth.
Ms James warned that “the spectre of recession beginning to loom” as the first half of next year looks set to deliver more of the same or worse.
Economists anticipate muted performance in the coming twelve months, with little improvement expected after the significant slowdown witnessed recently.
Alex Kerr, UK economist at Capital Economics, said with the economy slowing “significantly” in the second half of 2025 “we doubt 2026 will be much better”.
LATEST DEVELOPMENTS:
Chancellor Rachel Reeves, who built her political standing on promises to unleash growth, faces particular scrutiny
|
PAThe forecaster projects 1.4 per cent growth for 2025, dropping to merely one per cent next year, with government spending serving as the primary engine of expansion.
The Confederation of British Industry has forecast a 1.3 per cent increase following Reeves’ announcement of an additional £11bn in state expenditure. CBI chief economist Louise Hellem cautioned this upgrade should be viewed as “cautious optimism” rather than “cause of celebration.”
Ms Hellem pointed to “underlying challenges” in regulation, taxation and energy as factors constraining private sector expansion.
Fresh data from the CBI on Monday revealed businesses expect their downturn to continue until spring 2026.
Ms James warned that “the spectre of recession beginning to loom” as the first half of next year looks set to deliver more of the same or worse
|
paOctober’s monthly figures showed the economy contracted by 0.1 per cent, marking the first decline of the year.
Sanjay Raja, Deutsche Bank’s chief UK economist, said: “For the first time this year, we see some meaningful risk of a marginal quarterly contraction in real GDP.”
He attributed the subdued outlook to Budget uncertainty combined with sluggish hiring and mounting fears over unemployment, which would likely dampen both consumer spending and business investment through the year’s end.