Key Takeaways:
- The UK’s economy grew by 0.3% in November, exceeding expectations of 0.1% growth
- The growth was driven by a return to full production at Jaguar Land Rover and a stronger-than-expected services sector
- The economy’s growth is expected to be limited due to uncertainty and caution among businesses
- The Bank of England expects the economy to have flat-lined in the October-to-December period of 2025
- The International Monetary Fund has forecast that Britain’s economy will grow by 1.3% in 2026, the same as last year
Introduction to the UK’s Economic Growth
The UK’s economy has shown a stronger-than-expected growth in November, with a 0.3% increase in gross domestic product (GDP). This growth is the fastest since June and has been driven by the return to full production at Jaguar Land Rover, as well as a stronger-than-expected services sector. The news has been welcomed by economists, who had forecast a more modest growth of 0.1% due to the impact of the budget statement on November 26. The growth has also led to a brief jump in the value of the pound against the US dollar and an increase in short-dated British government bond yields.
Drivers of Economic Growth
The growth in November was driven by a 1.1% rise in industrial output, which was in turn driven by a 25.5% rise in car production. This is the biggest monthly increase in car production since July 2020, when COVID-19 restrictions were eased. The services sector also grew by 0.3% in November, exceeding expectations and recovering from a 0.3% decline in October. The construction sector, however, saw a sharp decline in production for the second month in a row. The Office for National Statistics reported that firms across the economy had been awaiting the outcome of the budget in November, which had led to some uncertainty and caution.
Business Sentiment and Investment
Despite the positive growth figures, businesses are still showing caution and uncertainty about investing and recruiting. Stuart Morrison, research manager at the British Chambers of Commerce, noted that firms are not showing a lot of relief after being spared a repeat of the big tax increases included in the previous budget. This caution is expected to limit growth in the foreseeable future. The Bank of England expects the economy to have flat-lined in the October-to-December period of 2025, although it thinks underlying growth is running at about 0.2% a quarter.
Economic Forecasts and Outlook
The International Monetary Fund has forecast that Britain’s economy will grow by 1.3% in 2026, the same as last year. This would be the third-fastest among the Group of Seven nations, after the United States and Canada. However, it would be less than half the typical pace in the roughly 15 years before the global financial crisis of 2007-09. Sanjay Raja, chief UK economist at Deutsche Bank, believes that the economy could outpace forecasts in early 2026 due to the stronger-than-expected data and the end of budget-related uncertainty.
Housing Market and Consumer Spending
There are some optimistic signals in the housing market, with sales expectations reaching their highest since the end of 2024 in December, according to a report by the Royal Institution of Chartered Surveyors. Yael Selfin, chief economist at KPMG UK, believes that lower inflation could help boost discretionary spending by consumers this year. Despite the relatively muted consumer sentiment so far, there are some tentative signs of a pick-up in household spending. The survey published on Wednesday showed businesses turned the most pessimistic in three years at the end of 2025, and their mood worsened after the budget.
Conclusion and Future Outlook
In conclusion, the UK’s economy has shown a stronger-than-expected growth in November, driven by the return to full production at Jaguar Land Rover and a stronger-than-expected services sector. However, businesses are still showing caution and uncertainty about investing and recruiting, which is expected to limit growth in the foreseeable future. The economy’s growth is expected to be limited, and the International Monetary Fund has forecast that Britain’s economy will grow by 1.3% in 2026, the same as last year. The government will need to work to boost business confidence and investment in order to achieve a step change in the economy’s growth.
