William Schomberg

The UK economy was in recession until the end of last year before the Iran war

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Item 1 of 5 Shoppers walk along Regent Street in London, Britain, May 15, 2025. REUTERS/Maja Smiejkowska/File Photo

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  • UK GDP confirmed at +0.1% in Q4
  • The Iran war is expected to be a major concern this year
  • Weak growth reduces the likelihood of a BoE rate hike, analyst says
  • A high savings ratio gives families protection

LONDON, March 31 (Reuters) – Britain’s economy will not grow by the end of 2025, official data confirmed on Tuesday, adding to the challenge for the government to keep growth going this year with the war in Iran likely to raise inflation and hit demand.

Gross domestic product increased by 0.1% in the October to December period, the Office for National Statistics said.

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Economists polled by Reuters had predicted that gross domestic product readings in the fourth quarter would not be revised up.

Growth in the third quarter was also confirmed at 0.1%.

“Such weak economic conditions make it more likely that the inevitable rise in CPI inflation in the coming months will not turn into a long-term hike that requires the Bank of England to raise interest rates,” said Paul Dales, chief UK economist at Capital Economics.

Traders are betting on two, or perhaps three, quarterly highs by the BoE before the end of the year. But most economists polled by Reuters think the central bank will not increase borrowing costs, given the weak economy.

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Last week the Organization for Economic Co-operation and Development cut its forecast for Britain’s economic growth this year to 0.7% from an earlier forecast of 1.2%, the biggest decline of any major economy.

That would represent half the growth rate seen in 2025, which the ONS has revised up to 1.4% from a previous estimate of 1.3%.

Prime Minister Keir Starmer and finance minister Rachel Reeves have promised voters they will speed up the economy, a challenge that looks even greater against the backdrop of conflict in the Middle East.

Most of the growth in the last three months of 2025 came from the public sector. Business investment fell.

However, there were other signs in Tuesday’s data that gave analysts some reason to be optimistic about the outlook, with households putting more money aside and raising the savings ratio by 0.8 percentage points to 9.9%.

“We think there is still adequate protection for consumers to reduce their savings rate and help reduce the rate of higher energy prices beyond 2026,” Elliott Jordan-Doak, chief UK economist at Pantheon Macroeconomics, said.

The ONS said the British economy in the fourth quarter grew by 1.0% from a year earlier – unchanged from the previous estimate – while on a per capita basis, output was 0.1% lower than a year earlier.

Britain’s current account deficit in the three months to the end of December was 18.4 billion pounds ($24.3 billion), compared with a Reuters forecast of 23.4 billion pounds and equal to 2.4% of GDP, larger than 1.4% in the third quarter. ($1 = 0.7576 pounds)

Reported by William Schomberg; edited by Suban Abdulla and Alex Richardson

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