Review of the UK economy in 2025

2025 was the first full year of the current Labour government, led by Sir Keir Starmer. The UK economy has experienced slow but positive growth, with steady inflation and decreasing interest rates. However, as Steven Proud describes here, there has been rising unemployment, and government spending and taxation have also been gradually increasing

Steven Proud

Rachel Reeves, chancellor of the exchequer, outside 11 Downing Street on 26 November, 2025

labour market issues, aggregate demand and supply, the role of central banks, fiscal and monetary policy

The Bank of England sets interest rates, with a focus on achieving 2% inflation (as measured by the consumer price index, CPI). The main mechanism available to the Bank of England to control inflation is through changing interest rates; in general, increases in the interest rate make it more expensive to borrow, leading to a reduction in aggregate demand, and lower inflation, while decreases in the interest rate have the opposite effect. In reality, the determinants of inflation are more complicated than this, and take into account expectations and shocks that affect aggregate supply.