UK Economy Set for 1.4% Growth, Outpacing Europe

Britain's economy is on track to expand by 1.4% this year, a performance that would see it outpace major European nations and mark its strongest growth since 2022. However, the forecast still falls short of the government's ambitious goal to lead the world's wealthiest countries.

According to new figures from Bloomberg Economics, the UK's economic outlook for 2025 has improved, with data from November showing stronger momentum than previously thought. This projected 1.4% expansion would be a significant step up from the post-lockdown recovery period.

The UK's Position in the G7 Growth Race

When Prime Minister Keir Starmer took office in 2024, he pledged to make Britain's economic development the fastest in the Group of Seven (G7) nations. The country has long struggled with slow growth, which has squeezed household incomes and created fiscal challenges for the government.

A 1.4% growth rate would place the UK third among G7 countries, trailing only the United States and Canada. This performance stands in sharp contrast to Germany, Europe's largest economy, which recorded just 0.2% growth last year. Britain appears set to maintain this third-place ranking throughout the current year.

Despite the relative strength, the outlook isn't entirely clear. While the economy now looks likely to have posted modest growth in the final quarter of the year—avoiding the flat performance some analysts and the Bank of England predicted—concerns remain. Weak job market figures and cautious consumer activity continue to weigh on the Labour government's economic agenda.

Will Consumer Spending Drive Future Growth?

The central question for the UK economy is whether consumers will become more willing to spend, according to Bloomberg Economics experts Ana Andrade and Dan Hanson. They project quarterly growth of around 0.3% through the end of 2026 but caution that this forecast might be "too optimistic, particularly in the context of a cooling labor market."

Looking further ahead, the expansion is expected to moderate. Economists polled by Bloomberg anticipate growth will slow to 1.1% in 2026, a rate that remains below the levels the UK consistently achieved during the 2010s.

Deconstructing the Latest GDP Figures

November’s 0.3% GDP growth surprised many, coming in higher than expected. However, a significant portion of this boost came from a rebound in industrial output after a hack disrupted operations at Jaguar Land Rover. This one-off event raises questions about the underlying strength of the economy.

Adding to the uncertainty is the impact of Chancellor Rachel Reeves' budget, which included a £26 billion tax increase. The effects of this fiscal tightening are yet to be fully seen.

Kallum Pickering, chief economist at Peel Hunt, offered a measured perspective. "While momentum clearly weakened in the second half of the year as households and businesses turned cautious amid worries over further tax increases, economic activity seems to have been less soft than surveys and anecdotes from businesses had indicated," he noted.

Ultimately, the government faces the difficult task of sustaining economic momentum while navigating the challenges of a hesitant consumer base and a softening labor market.