Rachel Reeves has suggested 2026 is the year Labour can start to deliver on its economic promises; but 0.1% GDP growth in the final quarter of last year is hardly the springboard she was hoping for.

In the supportive message on X she sent on Monday as Keir Starmer’s future appeared under threat, the chancellor claimed, “the conditions for the economy to grow are there”.

But the latest data, published by the Office for National Statistics (ONS) suggests that despite six interest rate cuts from the Bank of England since mid-2024, consumers and businesses are not yet taking the hint.

Output from the key services sector was flat over the final quarter of the year, the ONS said, with construction – crucial to Labour’s ambitious housebuilding targets – declining by 2.1%.

Over the year as a whole, GDP expanded by 1.3%. That was a modest improvement on the 1.1% recorded in 2024 – while GDP per head, the measure that matters more for living standards – was up 1%, after flatlining in the previous year.

That was certainly not a performance in line with Labour’s pre-election promise to secure “the highest sustained growth in the G7”.

As the ONS points out, Canada, under its prime minister, Mark Carney, saw faster growth of 1.6% in 2025, and while fourth quarter data for the US has not yet been published, it is clear that it is likely to have outpaced the UK.

The Treasury would highlight external factors, including the instability created by Donald Trump’s on-off tariff policies, which caused chaos in financial markets and forced US-facing businesses to rethink supply chains.

But economists also point to the imposition of Reeves’s £25bn employer national insurance rise last April, and the chaotic run-up to to her second tax-raising budget in late November.

However, there are some reasons to be more optimistic for 2026. Policymakers at the Bank of England’s rate-setting meeting last pointed the way to a seventh interest rate cut, perhaps as soon as next month, despite leaving rates unchanged at 3.75%.

That was largely because, alongside post-dated tax rises, Reeves’s budget included a slate of price-cutting measures, including a reduction in energy bills, which will help inflation to move back down to target.

The Treasury will be hoping that another rate cut, alongside its anti-inflation measures, will cheer up wary consumers and reassure businesses. Forward-looking surveys have pointed to an upturn of late, though there is continued anxiety about job cuts.

Reeves will have been encouraged by news that business investment, which Labour sees as crucial to improving the UK’s flailing productivity, was up 3.5% in 2025 (though it fell in the fourth quarter).

And she intends to make next month’s spring forecast from the Office of Budget Responsibility as much of a non-event as possible, avoiding the turmoil that surrounded last year’s botched statement, when she made welfare cuts that then had to be reversed.

Economists now expect growth to pick up in the coming months – unless Reeves’s colleagues choose this moment for a potentially destabilising tilt at Starmer. As Thomas Pugh of consultancy RSM put it, “the biggest risk now is a protracted and noisy leadership contest that could reopen Pandora’s box of tax increases and inject a renewed bout of uncertainty”.