Current state of UK economic growth

26th December 2025

As of late 2025, the UK economy is growing but at a modest pace, with signs of slowing momentum.

The Office for National Statistics (ONS) shows that UK GDP continued to expand in 2025, but growth has decelerated after a solid start to the year. Quarterly GDP expanded by about 0.3% in the second quarter of 2025, down from 0.7% in the first quarter, reflecting weaker output in manufacturing and some service sectors.

More comprehensive figures to mid‑year suggest real GDP grew around 1.4% year‑on‑year in 2025, with services and construction contributing more to growth than production.

However, recent business surveys point to slowing private‑sector activity and falling investment, and some indicators suggest contraction in parts of late 2025 and early 2026, such as weaker business output and falling job vacancies.

Is the UK in Growth, Stagnation, or Contraction?

Overall, the UK is in a period of economic growth, but at a subdued pace rather than rapid expansion. The economy has avoided outright contraction on an annual basis in 2025, but growth is clearly slowing from earlier in the year and uneven across sectors.

Recent private‑sector downturn indicators — including falls in output and job vacancies — suggest parts of the economy may be flat or contracting in late 2025 / early 2026, even though aggregate GDP remains positive.

Comparison with Other Major Economies

The UK's growth performance is modest but not weak by international standards:

According to IMF and OECD forecasts, the UK is expected to grow at around 1.2-1.4% in 2025 and 2026, placing it as one of the faster‑growing G7 economies (behind the US but ahead of several European peers).

By comparison, the United States is projected to grow around around 2.0-2.1% in 2025-26, stronger than the UK.

The Euro Area overall is expected to grow more slowly, with averages below the UK's growth rate.

China's economy has been slowing relative to past decades, with weaker domestic demand and export challenges, though it remains among the fastest‑growing major economies globally.

Overall, relative to other major advanced economies, the UK's growth is modest but comparatively resilient, especially versus the eurozone, though not as strong as the US or emerging markets like India or (in many forecasts) China.

Key Drivers of UK Economic Growth

Growth in the UK has been driven by a mix of domestic and external components:

Consumer Spending:
Household consumption remains a key pillar of UK growth, though it has softened due to inflationary pressures, stagnant real wages, and weak consumer sentiment that weigh on spending power.

Government Spending:
Public sector consumption and investment have supported growth, especially infrastructure and services, contributing to the GDP uptick in 2025.

Business Investment:
Investment has been weak by historical standards and is expected to remain subdued, holding back productivity gains and long‑term growth. Surveys indicate weaker business investment growth in 2026.

Exports:
Export growth has contributed positively, but global trade uncertainties and tariff risks (e.g., potential US tariffs) cloud the outlook and could dampen export momentum.

Sectoral Contributions:
Services — particularly business services and healthcare — have been stronger, while manufacturing and production sectors lag behind.

Long‑Term Projections for UK Growth

Long‑run forecasts indicate steady but modest GDP expansion rather than rapid catch‑up with faster‑growing emerging markets.

Official Forecasts (OECD / IMF):

The OECD projects UK GDP growth around 1.2% in 2026 and 1.3% in 2027, with weak productivity and fiscal tightening dampening long‑term momentum.

The IMF also projects similar growth rates near 1.2-1.4%, noting structural challenges like weaker productivity and global uncertainty.

Business Forecasts:
Industry forecasts suggest growth at around 1.2-1.5% annually through the late 2020s, with stronger growth in services and exports but continued headwinds from investment weaknesses.

Long‑Term Outlook (2040):
Long‑range projections from think tanks like the Centre for Economics and Business Research (CEBR) see the UK climbing the global GDP rankings — potentially overtaking Japan to become the world's fifth‑largest economy by 2040 — but even these scenarios rely on continued moderate growth rather than rapid acceleration.

Summary: The UK Economy Today & Tomorrow

The UK economy is in a period of growth rather than stagnation or contraction, but that growth is modest and slowing in late 2025 as consumer and business sentiment weakens. GDP forecasts for 2025 range around 1.2–1.4%, placing the UK among the more resilient advanced economies, even if it underperforms compared with the United States and some emerging markets.

Domestic demand (especially consumer and government spending) and services activity have been key drivers, but investment remains weak and productivity slow. Looking ahead, growth of around 1–1.5% annually over the coming years appears likely, with a somewhat brighter long‑term trajectory if structural reforms and global trade conditions improve.

Services Sector — Still the Main Engine of Growth

The services sector continues to be the largest contributor to GDP growth in the UK. This sector accounts for around 72–73 % of total economic output and over 80 % of employment, making it the backbone of the British economy. Finance, professional services, retail, logistics, hospitality, and tech‑related services are key components.

Throughout 2025, services output has consistently contributed positively to quarterly GDP increases. For example, between April and June services grew by about 1.2 % year‑on‑year, while in the three months to September 2025 services continued to contribute the largest share of GDP growth, even as overall growth slowed.

Within services, professional, scientific, and technical activities have repeatedly shown strong momentum and often lead growth among sub‑sectors, reflecting demand for business services, consultancy, legal, R&D, and IT services. These services grew faster than the overall economy in recent quarters and have played a particularly important role in keeping growth positive even as other sectors slowed.

Production and Manufacturing — Mixed Performance

The production sector — which includes manufacturing, mining, and utilities — has been more volatile in 2025. While production output showed growth in some months, it also experienced periods of contraction. For example, in late 2025 manufacturing and broader production saw declines, including notable weakness in specific industries such as motor vehicles, trailers, and semi‑trailers, which weighed on industrial output.

ONS data show that, across the three months to September 2025, production output fell by around 0.5 %, signalling that manufacturing remains fragile and sensitive to global demand, supply chain pressures, and investment levels.

However, earlier in the year there were pockets of stronger activity: in June 2025, the production sector grew by about 2.2 %, with manufacturing and related industrial output contributing positively to GDP in that period.

Construction — Gentle Support, Not a Standalone Driver

The construction sector has generally contributed positively to GDP growth in 2025, but its impact has been modest compared with services. Construction output rose in several months — for example June 2025 saw construction grow by around 0.5 % — reflecting activity in infrastructure, housing repair, and commercial builds.

Still, construction’s share of overall GDP is much smaller than services, so even steady growth here only provides limited uplift to headline figures.

Sector Trends Relative to the Broader Economy

Putting the sector contributions together with official GDP data:

Overall UK GDP growth in mid‑2025 was supported mainly by services expansion, with GDP estimated to be about 1.1–1.4 % higher year‑on‑year in June 2025, largely because of services strength.

Production and construction contributed smaller, more fluctuating amounts — sometimes positive, sometimes negative — highlighting weaker demand conditions in manufacturing and the ongoing challenges of investment and global trade uncertainty.

By late 2025, data indicated that aggregate GDP growth slowed and even slightly contracted in some months, in part because services showed minimal growth while production and construction weakened.

Overall, the services sector remains the pillar of UK growth, particularly business‑to‑business services, finance, retail and wholesale, and professional services. Manufacturing and broader production are much less reliable contributors at present, facing volatility and slower global demand, while construction provides support but is not a major driver due to its smaller share of GDP.

What This Means for Economic Growth Going Forward

The UK’s reliance on services, particularly high‑value services, means that employment and growth tend to be concentrated in professional jobs, finance, tech and business services — sectors that have remained resilient even as manufacturing struggles.

Slowing production and weak investment remain risks, especially if global demand weakens or cost pressures rise further.

Construction can help stabilise near‑term growth but is limited by housing market dynamics, labour shortages, and planning constraints.

What are the key risks to the UK economy in the short and long term