The UK economy is showing alarming signs of stagnation, with new official figures revealing growth almost ground to a halt in the second half of 2025 and raising the stark possibility of a recession.
Stagnant Growth and Downward Revisions
Data released on Monday by the Office for National Statistics (ONS) painted a bleak picture. It revised down growth for the second quarter to a modest 0.2 per cent from an initial 0.3 per cent estimate. The situation deteriorated further in the third quarter, with the economy managing growth of just 0.1 per cent.
Investment strategist Lindsay James from Quilter stated the numbers confirm the UK economy is "grinding to a halt" and showing little sign of repeating its first-half performance. The slowdown continued into the final quarter, with monthly data for October showing a 0.1 per cent decline.
A Political and Economic Setback
The weak growth represents a significant early challenge for Chancellor Rachel Reeves and the Labour government, which had declared economic growth its "defining mission." The figures emerged after the Office for Budget Responsibility concluded that the £26bn in tax rises announced in Reeves' November Budget would have no effect on growth.
Sanjay Raja, Deutsche Bank's chief UK economist, noted, "For the first time this year, we see some meaningful risk of a marginal quarterly contraction in real GDP." He attributed the risk to budget uncertainty, weak hiring, and fears of rising unemployment suppressing spending.
A Gloomy Outlook for 2026
Economists are forecasting continued weakness in the year ahead. Alex Kerr of Capital Economics said that with the economy slowing "significantly" in late 2025, "we doubt 2026 will be much better." His firm projects growth will drop from 1.4 per cent in 2025 to just 1 per cent in 2026, with the public sector expected to be the main driver.
The Confederation of British Industry (CBI) offered a slightly more optimistic forecast of 1.3 per cent growth for the coming year, following the Chancellor's announcement of an extra £11bn in government spending. However, chief economist Louise Hellem urged "cautious optimism," warning that private sector expansion is still constrained by challenges in regulation, taxation, and energy.
James of Quilter summed up the prevailing concern, warning that the "spectre of recession" is beginning to loom and that the first half of 2026 is likely to see more of the same sluggish performance, if not worse.
