UK economy limps along at 0.1% growth but there are reasons for optimism in 2026

"But the latest data, published by the Office for National Statistics (ONS) suggests that despite six interest rate cuts from the Bank of England since mid-2024, consumers and businesses are not yet taking the hint. Output from the key services sector was flat over the final quarter of the year, the ONS said, with construction crucial to Labour's ambitious housebuilding targets declining by 2.1%."

"Over the year as a whole, GDP expanded by 1.3%. That was a modest improvement on the 1.1% recorded in 2024 while GDP per head, the measure that matters more for living standards was up 1%, after flatlining in the previous year. That was certainly not a performance in line with Labour's pre-election promise to secure the highest sustained growth in the G7."

"The Treasury would highlight external factors, including the instability created by Donald Trump's on-off tariff policies, which caused chaos in financial markets and forced US-facing businesses to rethink supply chains. But economists also point to the imposition of Reeves's 25bn employer national insurance rise last April, and the chaotic run-up to to her second tax-raising budget in late November. However, there are some reasons to be more optimistic for 2026."

Chancellor Rachel Reeves set out 2026 as when Labour can begin delivering economic promises, but Q4 GDP grew only 0.1%, limiting momentum. Six Bank of England rate cuts since mid-2024 have not yet sparked strong consumer or business activity. Services output was flat in the final quarter and construction fell 2.1%, complicating ambitious housebuilding goals. Annual GDP rose 1.3% and GDP per head increased 1%, modest improvements from 2024 but short of targeted G7-leading growth. External US tariff instability and domestic tax rises weighed on performance, though policymakers signal possible further rate cuts early in 2026.

Read at www.theguardian.com