What's happening to the UK economy and how does it affect you?

The government repeatedly talks about the importance of economic growth.

The latest figures show that the UK economy grew by 0.1% in the final three months of 2025, the same rate as in the previous quarter, and slightly slower than expected.

The rate of economic growth matters because it affects things like pay increases for workers and the amount of tax the government raises to pay for services.

GDP stands for gross domestic product, and is a measure of all the economic activity of companies, governments, and people in a country.

In the UK, the Office for National Statistics (ONS) publishes new GDP figures every month. However, these can be quite volatile and the quarterly figures - covering three months at a time - are considered more significant.

Most economists, politicians, and businesses like to see GDP rising steadily.

That's because it usually means people are spending more, extra jobs are created, more tax is paid, and workers get better pay rises.

When GDP is falling, it means the economy is shrinking - which can be bad news for businesses and workers.

If GDP falls for two quarters in a row, that is known as a recession, which can lead to pay freezes and job losses.

Many economists and politicians are concerned that the UK economy is not growing fast enough.

When the Labour government took power in July 2024, it said growth was its top priority.

Although the economy grew faster than expected at the start of 2025 - expanding by 0.7% in the January-to-March period - its performance slowed steadily as the year progressed.

The economy grew by 0.2% in the three months to the end of June, but then slowed to 0.1% in both of the last two quarters of the year.

The ONS said the overall picture at the end of 2025 was one of "subdued growth". GDP was estimated to have increased by 1.3% across the 12-month period, up from 1.1% in 2024.

At the time of the November 2025 Budget, the Office for Budget Responsibility (OBR) - the government's official forecaster - predicted that the UK's economy would expand by 1.5% in 2025.

It also predicted growth of 1.4% in 2026 and 1.5% in all of the following four years.

If GDP is going up steadily, people pay more in tax because they're earning and spending more.

This means more money for the government, which it can choose to spend on public services, such as schools, police and hospitals.

When the economy shrinks and a country goes into recession, these things can go into reverse.

Governments tend to get less money in tax, which means they may decide to freeze or cut public spending, or put taxes up.

In 2020, the Covid pandemic caused the most severe UK recession for more than 300 years, which forced the government to borrow hundreds of billions of pounds to support the economy.

GDP can be measured in three ways:

• Output: The total value of the goods and services produced by all sectors of the economy - agriculture, manufacturing, energy, construction, the service sector and government
• Expenditure: The value of goods and services bought by households and by government, investment in machinery and buildings - this also includes the value of exports, minus imports
• Income: The value of the income generated, mostly in terms of profits and wages

In the UK, the ONS publishes one single measure of GDP, which is calculated using all three measurements.

But early estimates mainly use the output measure, using data collected from thousands of companies.

The UK produces one of the quickest estimates of GDP of the major economies, about 40 days after the quarter in question.

At that stage, only about 60% of the data is available, so the figure is revised as more information comes in.

The ONS publishes more information about this on its website.

GDP doesn't tell the whole story:

• The hidden economy: unpaid work such as caring for children or elderly relatives isn't captured
• Inequality: rising GDP could result from the richest getting richer, rather than everyone becoming better off, and some people could be worse off
• Living standards: if the population is also growing, increased GDP can still mean less money per person, which can reduce people's living standards. This is why the GDP per capita measure is important

Some critics also argue that GDP doesn't take into account whether the economic growth it measures is sustainable, or the environmental damage it might do.

Alternative measures have been developed which try to capture this.

Since 2010, the ONS has also measured well-being alongside economic growth. This assesses health, relationships, education and skills, as well as people's personal finances and the environment.

But despite its limitations, GDP is still the most widely used measure for most government decisions and international comparisons.