Key points:

• UK GDP grows just 0.1% in Q4 2025
• Pound-dollar holds near $1.32
• UK currency sheds more than 5%

Growth was there, at the tiniest pace, but the prospects are a bit dim. Can the UK govt keep the growth going in 2026?

🏦 0.1% Growth. Technically Not a Recession.

• The GBPUSD pair held near $1.32 early Tuesday after the Office for National Statistics confirmed UK GDP grew 0.1% in the fourth quarter of 2025.
• The number is in line with economist forecasts and matching the third quarter’s equally uninspiring 0.1% reading. Two consecutive quarters of 0.1% growth is the economic equivalent of barely moving on a treadmill. Technically moving, going nowhere.
• On an annual basis, the UK economy was 1.0% larger in Q4 than a year earlier, a number that sounds more reassuring until you place it alongside an inflation rate running at 3%, a Bank of England holding rates at 3.75%, and an Iran war threatening to push energy costs materially higher through 2026.

⚠️ Starmer and Reeves Have a Growth Problem

• Prime Minister Keir Starmer and Finance Minister Rachel Reeves have been promising to accelerate the UK economy, a commitment that looked ambitious looks considerably harder now.
• The Bank of England, which had been expected to cut rates and provide some growth support earlier this year, is now pricing in potential rate hikes instead as oil prices reshape the inflation outlook.
• The structural challenges facing the UK economy predate the Iran war entirely. Weak productivity growth, sluggish business investment, and persistent public sector capacity constraints were already limiting the economy’s speed limit before crude started its parabolic run.

💷 Pound Sheds 5%, Still Searching for a Floor

• Sterling has shed more than 5% against the US dollar since late January, a decline that reflects a combination of dollar strength driven by safe haven demand and UK growth disappointment.
• A sustained move lower from here would add imported inflation pressure on top of the energy shock already working its way through the system.
• The near-term trajectory for the pound-dollar depends heavily on two variables neither the UK government nor the Bank of England controls: what oil does next and how quickly the Iran conflict moves toward resolution.

Source: Tradingview