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It was supposed to be a small step forward. Instead, this morning’s GDP figures showed the UK economy barely moved in the final quarter of last year. Growth came in at just 0.1% – half what most economists had pencilled in – and capped a second half of 2025 that has gone from sluggish to stalling. The trajectory tells its own story: the economy grew 0.7% in the first quarter of last year, then 0.2%, then 0.1%, and now 0.1% again. That is not a country building momentum.
The details made it worse. Services – the sector that accounts for roughly three quarters of UK output – were completely flat. Construction fell sharply. The only genuine bright spot was production, but even that faded through the quarter as the initial boost wore off. Full-year growth for 2025 landed at 1.3%, below what the OBR had forecast and below what the Bank of England was banking on in its November projections.
Sterling dropped on the number. The pound lost ground against the euro this morning and is sitting lower against the dollar too, having already been under pressure from yesterday’s stronger-than-expected US jobs report. That combination – soft UK growth and a dollar that found fresh energy overnight – is an uncomfortable one for anyone watching the pound. Markets are now pricing a Bank of England rate cut at the next meeting in March with growing conviction, and today’s figures will only reinforce that view.
Across the Atlantic, the picture is more complicated than it first appeared. America added 130,000 jobs in January, nearly double what forecasters had expected, and the unemployment rate ticked down to 4.3%. On the surface, that is a labour market finding its feet again after weeks of disruption. But alongside the headline, the Bureau of Labor Statistics quietly revised 2025’s total job creation down by almost 900,000. The economy was adding roughly 15,000 jobs a month last year – not the 50,000 originally reported. The dollar gained on the beat, but the revisions are the kind of detail that lingers.
The politics hasn’t helped either. Starmer is still standing after last week’s drama. Parliament breaks for recess today. With Labour polling at around 20% and Reform out in front, the quiet may bring relief for Downing Street – or simply delay the next eruption. For the pound, political noise is now a background hum that refuses to fade completely, and investors will want to see something more concrete than cabinet loyalty before they stop pricing in the extra risk.
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GBP: Rate cuts back in the spotlight
The pound slipped against both the euro and the dollar after this morning’s growth figures came in below expectations. With the Bank of England already split 5–4 on rates last week – far more dovish than anyone predicted – a weak GDP number hands the doves exactly the ammunition they needed. A March cut is looking increasingly likely, and that expectation alone is enough to keep a lid on any sterling recovery in the short term.
GBP/USD: the past year
EUR: Quietly outperforming
The euro is steady near recent highs against the dollar and gained ground on sterling after the GDP miss. Eurozone growth actually outpaced the UK in the fourth quarter, inflation has cooled to 1.7% – comfortably below target – and the ECB looks in no rush to move. The departure of Bank of France Governor Villeroy de Galhau in June removes one of the more dovish voices from the governing council, but for now the single currency is benefiting from being the calm one in the room.
GBP/EUR: the past year
USD: Jobs beat lifts the dollar – but read the small print
The dollar strengthened yesterday after the January payrolls blew past expectations. Health care led the way with 82,000 new roles, and construction added another 33,000. But the Bureau of Labor Statistics also confirmed that nearly 900,000 fewer jobs were created in 2025 than originally reported – one of the largest downward revisions on record. The headline was strong; the backstory less so. Fed rate cut expectations have been pushed back to July, though another month of mixed signals could easily change that.
EUR/USD: the past year
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