Only an eternal optimist would suggest that the UK economy had a satisfactory year in 2025, with its disappointing mix of sluggish growth, sticky inflation and pallid business investment. Positive progress was held back by the after-effects of the 2024 Budget and uncertainties ahead of the 2025 Budget.

This was set against the background of a weakening labour market, all manner of uncertainties for business decision makers from geopolitical events, and the rapid advancements of technology impacting many aspects of how businesses are run.

What are the latest economic indicators behind what now seems to be a general but faint hint of tentative optimism as we move into 2026?

GDP – November 2025

• After distinctly unimpressive growth of 0.1% in Q3 2025 and 0.3% in Q2 2025, the latest numbers suggests that the economy is edging forward with a rise of just 0.1% in the three months to November. This figure was materially affected by the cyber hack at Jaguar Land Rover, which pushed the production sector as a whole into a drop of 0.1% and the motor manufacturing sub-sector within it down to a huge fall of 18.9%.
• Looking into the detail, the dominant services sector rose by 0.2%, as it had in Q3. The best performing sub-sectors were travel services (+5.6%) and sport/recreation (+3.9%). The laggards were led by advertising (-4%) and architecture (-3.4%).
• Construction GDP fell by 1.1%, compared to its rise of 0.1% in Q3 2025. Repair and maintenance activity fell by 1.1% and new work by 1%.
• Consumer-facing services GDP grew by 0.5%, compared to a drop of 0.1% in Q3 2025.
• The separate GDP figure for November only demonstrated how misleading a single month’s performance can be. It rose by 0.3%, but this was heavily skewed by the return of production after the JLR cyber hack. That single event pushed motor manufacturing output up by more than 25%.

Inflation – December 2025

• CPI inflation rose from 3.2% to 3.4% in the year to December 2025. City economists had predicted a more modest rise to 3.3%.
• The general consensus is that this is not the start of a new upward trend, but the result of what one commentator described as “fairly temporary erratic factors”, including air fare rises over Christmas and the Budget increase in tobacco duty.
• ‘Core’ inflation (excluding the more volatile elements, such as housing and energy costs) remained unchanged at 3.2%.
• Service sector inflation rose from 4.4% to 4.5%.
• Nevertheless, economists are predicting that the increase in inflation may delay the next interest rate cut and possibly reduce the number of cuts in 2026 from three to only two.

Employment

The latest Office for National Statistics labour force and employment data show:

• Unemployment remained at 5.1%.
• Economic inactivity fell from 21% to 20.8% of the working population aged between 16 and 64.
• Vacancies in Q4 2025 rose slightly to 734k, but are 69k down compared to a year ago.
• Pay growth was 4.5%, or 0.6% after inflation.

Insolvencies – December 2025

On a non seasonally-adjusted basis for the whole UK, there were 1,732 corporate insolvencies in December 2025, compared to 2,030 in the previous month, a fall of 15% month-on-month but only 8% year-on-year compared to December 2024. Looking further back, the current figure is 19% higher than pre-pandemic in February 2020. The more meaningful rolling twelve-month total for December 2025 was 25,526, almost the same as a year previously and 5% down on the all-time high in February 2024.

What next for UK businesses?

Despite mild optimism by some observers about growth prospects, the business community has now come to terms with the reality that 2026 is almost certainly going to be another year of challenges, as it deals with below trend growth, constrained consumer spending power despite falling inflation, fragile consumer confidence and sharply higher labour and other costs in many key industries in the vital services sector.

It’s difficult to identify what is going to drive the stronger business investment the economy so desperately needs to drive higher and more sustained levels of growth. The Resolution Foundation has pointed out that UK GDP per head is now level with Italy, having been 8% higher before the pandemic. Having closed the gap with the average of Australia, Canada, France, Germany and the Netherlands to just 5% in 2005, the UK is now struggling 15% behind its former peers.

The latest predictions for UK growth in 2026 are modest. The OECD is predicting 1.2%, the Office for Budget Responsibility thinks 1.4% and the latest HMT average of independent forecasts aligns with the OECD at 1.2%.

The fragility of these forecasts to unexpected events was demonstrated recently by the USA signalling substantial extra tariffs on goods exported by the UK and seven other countries to the USA, as a response for opposing its proposed annexation of Greenland. Fortunately, these penalties have been taken off the table for now after discussions at the Davos World Economic Forum, but they could easily be re-imposed at any time. Quite how UK businesses are meant to plan or commit to investment under these conditions is hard to understand.

Key strategies into 2026 continue to be disciplined decision‑making grounded in financial resilience and heightened risk awareness. Despite this, there will be opportunities for financially sound and ambitious businesses to expand organically and also by acquisition as struggling competitors look for calmer waters in such a challenging environment.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.