A lot has changed since the latest economic data was released. The highly anticipated spring statement was something of a non-event, but the outbreak of war in Iran is sure to have widespread impacts on global economies in the coming weeks and months.

These developments will likely create a different picture of the UK’s growth potential than was painted by March’s data, which showed tentative signs of progress. GDP edged forward for a second consecutive quarter, inflation fell to its lowest level since March 2025 and interest rate cuts looked increasingly likely in the spring.

At the same time, unemployment reached its highest level in nearly five years, construction contracted sharply and consumer and investor confidence remained low. So, while some commentators saw cause for cautious optimism, it remains to be seen whether the government’s commitments to supporting UK business growth and productivity will translate into tangible results — especially in the wake of recent and ongoing geopolitical disruption.

GDP – December 2025

• UK GDP limped along by an additional 0.1% in the three months to December 2025, matching the same growth rate as the previous three months. This rate is estimated to be 1.0% higher in Q4 2025 than it was in Q4 2024, cementing the trend of subdued economic growth following the Autumn Budget. This growth has been largely attributed to the manufacturing sector, with the Jaguar Land Rover factory resuming operations following a cyber attack on the company in August 2025.
• After an increase of 0.2% in Q3 2025, the dominant services sector showed no overall growth for the first time in two years.
• The production sector showed more potential, recording an estimated 1.2% of growth in the same period following a 0.7% fall in the previous quarter. Manufacturing and repair saw significant growth of 5.4%, with electricity, gas, steam and air conditioning supply (+3.1%), mining and quarrying (+1.4%) and water and waste management (+0.7%) also supporting production increases.
• Meanwhile, construction output contracted by an estimated 2.1% – the sector’s worst performance in four years. Looking at the detail, the largest negative contribution came from the private housing repair and maintenance sector, which fell by 2.9%.

Inflation – January 2025

• Headline inflation fell to 3% in January in line with City economists’ forecasts, marking a 0.4% decrease since the last release and the lowest level since March 2025.
• Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.1% in the 12 months to January 2026. The CPI goods annual rate fell from 2.2% to 1.6%, while the CPI services annual rate fell from 4.5% to 4.4%.
• The ONS attribute lower inflation rates to seasonal falls in air fares, fuel prices and food, with the rise in food and non-alcoholic drinks down from 4.5% in December to 3.6% in January. However, it’s likely that this sharp decline in food inflation has been driven disproportionately by a small number of goods, and the price of food staples is still well above average. Commentators warn that higher wage costs and National Insurance rates could push these prices back up later in the year.
• Still, the Bank of England expects the inflation rate to dip to 2% this year, increasing confidence in the likelihood of early interest rate cuts in the spring.

Employment

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

• UK unemployment rates reached 5.2% in the last three months of 2025, the highest level in almost five years.
• Young people are hardest hit, with unemployment rates for people aged between 16 and 24 sitting at 16.1% — the highest rate in more than 10 years.
• Overall, economic inactivity decreased by 0.1% points to 20.8% of the working population aged between 16 and 64.
• Vacancy numbers remain broadly unchanged, though early estimates for November 2025 to January 2026 suggest a small increase of 2,000 (0.3%) to 726,000. Total vacancies were down by 73,000 (9.2%) in November 2025 to January 2026 compared to the same period the previous year.
• Annual pay growth was 4.2% from October to December 2025, or 0.5% after inflation.

Insolvencies – January 2026

• There was a 4% increase in corporate insolvencies (1,744) in England and Wales in January 2026 compared to December 2025 (1,683), reflecting the continued financial strain many businesses are facing.
• Still, this rate is 14% lower than January of last year, when 2,028 corporate insolvencies were recorded.
• Meanwhile, personal insolvencies were up by 12% YoY, increasing from 10,843 from 9,644. This figure is 20% higher than December 2025, largely due to temporary backlogs at the end of last year.

Opportunity exists, but risk awareness remains crucial

It’s difficult to say what the future holds for UK businesses with so many evolving and uncertain factors in play. Falling inflation and the prospect of interest rate cuts this spring had left room to hope that pressure on borrowing costs and consumer spending could ease. However, recent international events are likely to put a dampener on this optimism.

Consumer and investor confidence is fragile, and the ongoing impact of rising wage and National Insurance costs continues to weigh on businesses. Oil and gas prices are expected to soar if the conflict in the Middle East draws on. And notwithstanding the Supreme Court ruling on Trump’s global tariffs, all signs point towards the White House pursuing alternative legal tools to impose new levies.

Time will tell how far the impacts of these latest developments will travel. In the meantime, financial resilience and risk awareness remain critical for decision-makers looking to press forward despite challenging conditions.

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.