The federal government is going through a essential warning over the looming “spectre of recession” after financial development stalled within the second half of 2025 and is anticipated to wane within the new yr.
On Monday, recent figures from the Workplace for Nationwide Statistics (ONS) downgraded the financial system’s second quarter enlargement to a sluggish 0.2 per cent from 0.3 per cent beforehand.
This was adopted by a 0.1 per cent enlargement within the third quarter with the ONS stating the figures painted an image of a slowing financial system.
Lindsay James, funding strategist at Quilter, mentioned the information “all however confirms what has turn out to be very clear within the second half of the yr – the UK financial system is grinding to a halt and exhibiting little signal of reaching what it did within the first half of the yr.”
It marks a serious blow to Labour, which said financial development can be its “defining mission,” and Rachel Reeves, who staked her political status on unleashing development.
The Workplace for Finances Accountability (OBR) additionally present in Reeves’ November Finances – the place she raised taxes to the tune of £26bn – there can be zero affect from the insurance policies launched on development.
“The federal government goes to must hope that earlier measures taken so far start to bear fruit, or that geopolitical challenges settle down sufficient that world commerce can rebound,” James mentioned.
“Sadly, neither appears significantly encouraging proper now and as such the primary half of subsequent yr is prone to be extra of the identical, if not worse with the spectre of recession starting to loom.”
Weak development and potential contractions on horizon
The slowing tempo of the UK financial system kicked into final quarter of the yr with the newest month-to-month figures for October exhibiting a 0.1 per cent contraction.
“For the primary time this yr, we see some significant threat of a marginal quarterly contraction in actual GDP,” mentioned Sanjay Raja, Deutsche Financial institution’s chief UK economist, mentioned.
“Certainly, Finances uncertainty mixed with weak hiring and rising unemployment worry will possible see spending and funding extra subdued to finish the yr.”
Within the 12 months to return, economists have pencilled in additional subdued development.
Alex Kerr, UK economist at Capital Economics, mentioned with the financial system slowing “considerably” within the second half of 2025 “we doubt 2026 will probably be a lot better”.
Capital Economists expects a 1.4 per cent enlargement in 2025, earlier than falling to only one per cent in 2026, with the general public sector “the principle supply of development”.
The Confederation of British Trade (CBI) has pencilled in a 1.3 per cent enlargement within the UK financial system within the yr forward after Reeves’ revealed an additional £11bn in state spending plans in her Finances.
Chief economist Louise Hellem mentioned the expansion improve must be interpreted as “cautious optimism” fairly than “reason for celebration”, warning that non-public sector development was being held again by “underlying challenges” in regulation, taxation and power.
Personal sector companies despatched a warning on Monday with information from the CBI revealing corporations anticipated their downturn to persist till Spring 2026.
