UK markets made further gains this week, with the FTSE 100 Index rising 0.7% to trade at 10,400 points at the time of writing.
The UK economy grew by 0.1% in the final quarter of 2025, undershooting expectations and capping a year of lacklustre growth that was overshadowed by trade shocks and uncertainty over fiscal policy. The change in quarterly GDP was below the 0.2% increase forecast in a Reuters poll of analysts and compared with an expansion of 0.1% in the third quarter. GDP increased by 0.1% in the month of December alone. The previous month’s increase was revised down slightly to 0.2%.
The data underscores the uphill task Prime Minister Sir Keir Starmer’s government faces in re-energising the UK economy. Real GDP per head fell for the second consecutive quarter by 0.1%, the Office for National Statistics reported. After the release of the GDP data, investors ascribed a roughly 60% chance of a quarter-point rate cut when the Bank of England’s Monetary Policy Committee meets next month. Growth in the latest quarter was propelled by higher industrial production, which rose 1.2%, but this was countered by a 2.1% fall in construction output, while services showed no growth, according to the Office for National Statistics.
For the year as a whole, UK GDP increased by 1.3%, below the Bank of England’s latest 1.4% estimate and compared with 1.1% in the previous year. The Bank of England is expecting GDP growth of just 0.9% this year. A breakdown of the data showed that consumer spending remained sluggish, rising by just 0.2% in the fourth quarter. Government consumption rose by 0.4%.
The weakness of private-sector activity may partly reflect the cloud of uncertainty heading into Rachel Reeves’ November Budget. Since then, there has been a bounce in business sentiment, but analysts stressed that the economy is still struggling to gain momentum. The gap between UK imports and exports of goods was the widest on record in 2025, while services registered a record surplus, underscoring the economy’s long-standing shift away from manufacturing.
Britain reported a £248.3 billion trade deficit for goods in 2025, £30.5 billion more than the previous year and the largest since the collection of comparable data began in 1997, according to figures from the Office for National Statistics. By contrast, the UK exported £191.8 billion more in services than it imported. That marked an increase of £16.4 billion from the previous year and was the largest on record. The strong performance of sterling over the past year, along with lower energy and production costs in other countries, has helped boost imports of cheaper products into the UK.
Commodity markets
In the commodity markets, Brent crude futures traded around $67 per barrel on Friday and are set for a slight weekly fall, on receding concerns of an Iranian conflict that could affect supply and forecasts that supply will exceed demand this year. Prices gained earlier this week on concerns that the US could attack Iran over its nuclear programme, but comments on Thursday from US President, Donald Trump that the US could make a deal with Iran over the next month drove prices lower.
In addition to the receding concerns about a conflict with Iran, the International Energy Agency on Thursday projected in its monthly report that global oil demand growth this year will be weaker than previously expected, with overall supply set to exceed demand. Thursday’s decline was amplified by earlier data showing a large build in US crude stockpiles and growing anticipation that increased Venezuelan supply could soon hit the market. There is an expectation that Venezuelan oil supply will return to pre-blockade levels in the months ahead, rising from 880,000 barrels per day to about 1.2 million barrels per day. US Secretary of Energy Chris Wright said on Thursday that oil sales from Venezuela controlled by the US have totalled over $1 billion since the capture of President Nicolás Maduro in January and will bring in another $5 billion over the next few months.
Gold prices traded around $4,960 an ounce on Friday, recovering from a nearly one-week low in the previous session as selling pressure intensified following an equities rout.
Equity markets
US equity futures fell on Friday after the major averages sold off in the previous session on renewed artificial intelligence concerns, while investors awaited the January consumer price index report. In Thursday’s regular trading session, the Dow Jones Industrial Average fell 1.34%, the S&P 500 lost 1.57%, whilst the Nasdaq Composite declined 2.03%.
The US economy added 130,000 jobs in January, almost double the 68,000 figure anticipated by economists polled by Bloomberg and well above the downwardly revised 48,000 added the previous month. The unemployment rate dropped to 4.3% from 4.4% in December. The unexpectedly positive start to the year took markets by surprise after recent reports showed lay-offs rising, job openings falling and unemployment claims on the rise.
The data will help reinforce Federal Reserve Chair Jerome Powell’s argument that the labour market is showing “evidence of stabilisation”, as the central bank halted its campaign of interest-rate cuts last month, and will lessen the chances of it taking action in the near term. The January job gains were led by an unexpectedly large jump in healthcare employment, while the social assistance and construction sectors also added roles. Jobs in finance and the federal government fell. However, some analysts warned against reading too much into the January figures, cautioning that risks to the labour market remained and that seasonal hiring could be clouding the underlying picture.
Elsewhere, the Congressional Budget Office warned that President Trump’s policies will expand the federal budget deficit by $1.4 trillion over the coming decade, driving up public debt and leaving government finances on an unsustainable path. It said the annual US deficit would rise from $1.9 trillion this year to $3.1 trillion by 2036, pushing federal debt levels beyond their Second World War record as soon as 2030.
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