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dispatch
When assessing what 2025 has meant for the UK economy, UK businesses and financial markets, it is tempting to focus less on what has happened and more on what has not happened.
Most obviously, the widely expected Bank of England rate cut did not materialize as hoped, while inflation did not fall as much as the Bank of England and other banks had hoped.
General view of residential and commercial skyscrapers over Tower Bridge in Canary Wharf, London, England, June 26, 2025.
John Keeble | Getty Images News | Getty Images
But when it comes to the economy as a whole, forecasters were mostly right.
At the start of the year, most people expected UK growth to be between 1.3% and 1.5%, according to a regular comparison of independent forecasts compiled by the Treasury.
The results more or less matched those expectations, but looking at the latest comparisons published last month, it is remarkable how much the consensus remains unchanged, despite most commentary on the UK economy being unrelentingly negative.
This big picture hides some interesting trends. UK GDP grew by 0.7% in the first three months of this year. This was, as Chancellor of the Exchequer Rachel Reeves (UK Chancellor of the Exchequer) likes to remind people, the highest of any G7 economy.
However, this growth was boosted by exporters stockpiling ahead of US President Donald Trump’s tariffs, and by the middle of this year it was clear that the UK had settled into a pattern seen in 2024, slowing the strong growth in the first quarter.
Growth in the second quarter was only 0.3%, and in the third quarter it was only 0.1%. In September and October, the latest months for which statistics are available, the economy contracted by 0.1% month-on-month. This reflects, firstly, a decline in automobile production due to the cyberattack on Jaguar Land Rover, the country’s largest automaker, and secondly, a calming housing market and sluggish consumer spending ahead of the November budget.
This means that the economy at the end of October was not as big as it was at the end of May.
As the end of 2025 approaches, the job market is turning red flags. While the unemployment rate has risen to 5.1%, the lowest level since January 2021, a closely watched study released this Monday by the Employment and Employment Confederation (REC) reports that the number of new job openings fell by 14.4% from October to November.
While this may reflect employers’ concerns about what Reeves will announce in his budget proposal on November 26, it is still surprising given the extent to which industries such as retail are hiring extra workers in the run-up to Christmas.
This suggests that the significant rise in Employer National Insurance Contributions (NICs, payroll tax) announced by Mr Reeves in October 2024 and which came into effect in April is having a lasting negative impact on the jobs market.
inflation surprise
This also contributes to one of the main surprises in 2025: higher inflation. In its final quarterly inflation report last year, the central bank said it expected consumer price inflation (CPI) to “rise over the next year and reach around 2.75% by the second half of 2025.”
As it turns out, the central bank was partially correct in that inflation rose. But it far exceeded expectations, reaching 3.8% in July and remaining there for two months before dropping slightly to 3.6% in October (and we’ll see how it goes in November later today). Much of this is due to government policy.
As the bank noted in its latest monetary policy report released last month, “unusually large increases in managed goods prices, such as motor vehicle excise taxes and sewer charges, are now estimated to account for 0.4 percentage points of CPI inflation’s overshoot from target. Food, beverage and tobacco prices are estimated to have contributed an additional 0.4 percentage points.”
“Most of the remaining 1 percentage point overshoot is judged to reflect higher labor costs due to the strength of historical wage growth and higher employer national insurance contributions, which in turn pushes up services and, to a lesser extent, goods inflation,” the Bank added.
Energy costs are starting to push down on inflation rather than push it up, but other policy decisions, such as the recently announced above-inflation increase in the living wage for all ages, which is expected to increase food and drink prices, and the expansion of the sugar tax, will continue upward pressure in the new year.
However, the lackluster performance of the UK economy does not appear to be having a negative impact on the stock market. There are only 6 full trading sessions and 2 shortened sessions left after today this year. FTSE100 By 2025, it has increased by more than 18% and now. S&P500 This is the first time since 2022 and only the third time in this decade.
However, keep in mind that the FTSE 100 is not a good barometer of the health of British companies, as it includes many multinational companies that derive only a small portion of their revenue in the UK.
A more accurate indicator of the performance of UK companies is a more domestically focused indicator. FTSE250 And here, the situation is not so bright, with the index up about 7% year-to-date.
Some of Britain’s best-known companies are enduring tough times, including travel retail specialist WH Smiths, which has fallen by around 44% following an accounting mishap.
Bakery chain Greggs has fallen nearly 40% this year on concerns about sluggish sales. In the same sector, Domino’s Pizza fell about 43%, while discount retailer B&M, another former stock market darling, fell more than 53%. All three of these past share price declines demonstrate how hard British consumers are in 2025 – and sadly, this trend is likely to continue as expectations become more realistic about how much the Bank of England will cut interest rates in 2026.
Popular TV Shows on CNBC
Vicky Price of the British Chambers of Commerce has suggested that AI could help boost Britain’s flagging productivity, but the group argues that Reeves’ budget will do little to boost the economy.
Dave Grimm, partner at AlbionVC, talks about the UK government’s investment in AI development.
Former British Deputy Prime Minister Nick Clegg has joined Hiro Capital as a general partner, leading the company in venture capital investments. Luke Alvarez, founder and general partner of Hilo Capital, speaks to CNBC’s Sylvia Amaro.
— Holly Ellyatt
need to know
Google announces UK’s first ‘automated laboratory’. DeepMind, the tech giant’s AI arm, on Thursday announced a partnership with the country’s government to open a facility next year. Give UK scientists “priority access” to AI tools, with a focus on developing new superconducting materials.
President Trump files a $10 billion lawsuit against the BBC. A British broadcaster was airing a documentary that edited President Trump’s January 6, 2021 speech to make it appear as though he explicitly encouraged his supporters to attack the US Capitol. US President Donald Trump filed a lawsuit against the BBC on Monday night, accusing it of defamation.
The UK economy shrank by 0.1% in the three months to October. Economists had expected gross domestic product (GDP) to remain stagnant during this period. In the three months to September, it expanded by 0.1%.
— Yeo Bunping, Holly Ellyatt
Quote of the week
There is not enough investment in the UK from both the public and private sectors. Taken together, fixed investment as a share of GDP is much lower than in all G7 countries, and this has been a problem that has kept productivity low for quite some time.
— Vicky Price, Chair of the Economic Advisory Committee, British Chambers of Commerce
at the market
of FTSE100 Labor fell on Tuesday after the Office for National Statistics’ employment figures revealed the unemployment rate rose to 5.1% in the three months from August to October, the highest level since January 2021.
However, the UK blue chip index rose 0.44% from last Wednesday to close at 9684.79 on Tuesday, as the latest UK PMI data showed a recovery in private sector activity following the Autumn Budget.
Among the personal names, endeavor mining hit a 52-week high of 3,746.00 earlier this week and was among the top gainers on the FTSE 100 as of Tuesday’s close. The gold miner closed 2.9% higher.
In other places, easyjet and JD Sports Two other companies had notable price movements in the last full week of trading before Christmas, rising 3.2% and 2.6%, respectively, on Tuesday.
on the other hand, british pound The pound has steadily appreciated against the dollar over the past week, with the pound inching higher against the dollar, reaching $1.3423 on Tuesday afternoon, up from $1.3382 last Wednesday.
Yield on UK government benchmark 10 year bond The stock, also known as Gilt, ended Tuesday at 4.519%, up slightly from 4.511% a week ago.
Performance of the Financial Times Stock Exchange 100 Index over the past year.
— Hugh Leask
very soon
17 December: UK inflation rate for November
December 18: BOE interest rate decision
December 19: GfK Consumer Confidence Data for December
— Holly Ellyatt
