GDP does little to alleviate pressure on Labour but light at the end of the tunnel?

Britain’s economy ended 2025 on a sour note, as it continued to trudge along at a snail’s pace in the final quarter of the year. Indeed, growth was almost non-existent throughout the second half of 2025, with the economy stagnating under the pressure of high inflation, rising business costs and a cooling in the jobs market.

While the data will do nothing to alleviate pressure on the deeply unpopular Labour government, there may be faint light at the end of the tunnel. UK inflation is set to fall, and we have yet to see the full transmission of Bank of England interest rate cuts, which should help lower borrowing costs and boost household spending. An easing in fiscal uncertainty could also support investment and help facilitate a modest recovery in growth.

The Bank of England still has a little way to go before it hits its terminal rate, and today’s soft data may encourage the MPC to opt for a cut at the next meeting in March, with another (likely final) rate reduction on the cards later in the year. The prospect of further policy easing, combined with the uncertainty surrounding the future of Prime Minister Starmer, means that we are slightly less upbeat on the pound than we once were.