Breaking News: UK GDP underwhelms with 0.1% growth in Q4, FTSE 100 slips & GBP/USD advances

• The UK economy grew by a lackluster 0.1% in Q4 2025, missing the 0.2% forecast.
• The performance was marked by a strong rebound in production (+1.2%) but neutralized by a significant contraction in construction (-2.1%).
• The dominant services sector flatlined (zero growth) for a third consecutive month, posing a major concern for the government's growth targets.
• The initial market reaction was mixed, with the FTSE 100 pulling back and GBP/USD eyeing a move higher.

Most Read: USD/JPY Outlook: Momentum bearish, but can the US dollar find support on strong jobs data?

Preliminary data from the ONS indicates that the UK economy expanded by 0.1% in the final quarter of 2025, maintaining the same growth rate as the third quarter but falling just short of the 0.2% forecast by analysts.

This sluggish performance was marked by a significant divergence across sectors. The production industry provided a strong tailwind, surging 1.2% to recover from a previous decline, with manufacturing specifically rising 0.9% as automotive production stabilized following a major cyber disruption in August.

However, these gains were largely neutralized by a flatlining services sector, where business-facing activities stalled and consumer-facing services grew by a marginal 0.2%.

Furthermore, the construction sector acted as a significant drag on the economy, contracting by 2.1% and reversing its modest growth from the prior period.

Contributions to three-month GDP growth, December 2024 to December 2025, UK

Markets seemed to shrug off the lackluster data with both GBP/USD and the FTSE 100 on the offensive this morning.

The FTSE 100 has since fallen around 50 points from the fresh all-time highs while GBP/USD eyes a move higher in the European session.

GBP/USD movement may be driven in part by the US dollar and its performance today ahead of the CPI data tomorrow.

GBP/USD - FTSE 100 15M Chart, February 12, 2026

When examining the broader economic landscape, the UK's GDP grew by 1.0% in the final quarter of 2025 compared to the same period in 2024. This steady annual performance was characterized by balanced contributions across the board, with both the services and production sectors expanding by 1.0%, while construction saw a more modest increase of 0.2%.

By the end of the year, December 2025 specifically showed a 0.7% improvement in economic output over the previous December, signaling a consistent, albeit measured, upward trend.

Taking the full year into account, the UK economy expanded by 1.3% in 2025 relative to 2024. This growth was primarily fueled by a 1.4% rise in services and a robust 1.8% increase in construction output.

Notably, the production sector returned to positive territory with a 0.2% increase, marking its first year of annual growth since 2021. Overall, these figures suggest a year of gradual recovery and the breaking of a multi-year stagnation in industrial output.

The services sector remained stagnant in the final quarter of 2025, recording zero growth in the three months leading up to December compared to the previous quarter.

This flat performance marks a continued trend of inertia, as recent data revisions have erased previously reported gains; growth for the periods ending in both October and November was adjusted downward to 0.0%.

Consequently, this latest update confirms a third consecutive month of stagnation for the UK's dominant economic sector on a rolling three-month basis.

While "zero growth" sounds alarming for a sector that makes up roughly 80% of the UK economy, the situation has been attributed to a mix of structural concern and temporary "Budget indigestion."

It does remain a concern though with the UK so dependent on services, the economy cannot achieve meaningful growth if this sector is flat. In Q4, the overall GDP only managed a tiny 0.1% increase, and that was largely thanks to a rebound in manufacturing.

One of the factors playing a role is the November 2025 budget. The increase in National Insurance contributions for employers and the rise in the minimum wage caused many service-based firms to freeze hiring and investment as they recalculated their costs.

It is a significant concern for the government's growth targets, as it shows the economy is currently walking a tightrope. However many analysts remain optimistic as the early 2026 data suggests it may be a "stumble" rather than a "fall."

Follow Zain on Twitter/X for Additional Market News and Insights @zvawda