IoD press release  Growth disappointment highlights the UK’s economic fragility

“GDP disappointed at year-end in 2025, growing by 0.1% in Q4, below the Bank of England’s and others’ expectations for growth of 0.2%. Elsewhere, revisions reveal that the economy was effectively flat between June and December 2025, bringing final growth for the year to 1.3% from the expected 1.4%. This demonstrates the significant damage that last year’s high levels of policy uncertainty inflicted upon activity. Weakness in construction output in particular reflects the impact of speculation over housing taxation, rising costs and regulatory disfunction, pushing activity to its lowest level since September 2024. The dominant services sector also stalled, posting no growth in Q4.

“Overall, the latest data paint a fragile picture of economic conditions, with demand and momentum fading as uncertainty intensified towards year-end. But encouragingly, our January confidence data shows a welcome rebound in sentiment among business leaders — the sharpest increase since immediately after the General Election — alongside improving revenue expectations. But just as a decent headline rate of GDP in 2025 growth masks underlying weakness, so is the case with this year’s recovery in business confidence. Businesses continue to feel the strain from an extremely sharp rise in the tax burden, with further cost rises to come this year, but there are welcome signs that decisions are coming off pause and activity is lifting. And there are some areas of policy focus in government this year which could reinforce growth further. Business rates reform, trade ties with the EU, industrial strategy and infrastructure investment are all major opportunities to improve the environment for growth and living standards in the UK. A faster pace of implementation could build on recovering momentum in the private sector and drive a brighter growth outlook this year.”