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The past year was not a year of leapfrog for the British economy, but rather a period in which gradual erosion emerged from the official statistics and was translated into the everyday language of households. Economic growth turned negative in the third quarter and inflation, although it fell, remained above the central bank’s 2% target, a combination that on the one hand indicated that price shocks were subsiding and on the other hand showed that the economy had not yet recovered from the tense situation of recent years. In this context, the central bank moved to cut interest rates to take some of the pressure off the sluggish economy, but at the same time warned that the risk of a return to inflation had not yet disappeared and the path of monetary policy was uncertain.
Despite the limited reduction in borrowing costs, a significant proportion of households remained burdened by heavy mortgage payments and high fixed costs, and this reality turned the picture of recovery into a mere statement on paper for many. High interest rates in the past two years had eroded purchasing power and severely limited the ability to save and consume. As a result, even the smallest increase in rent, bills or the price of essential goods could once again upset household finances and exacerbate feelings of uncertainty.
Although the decline in food and energy inflation had an impact on the macro statistics, it did not make a decisive change in the spending basket of many people. Low-income households continue to spend a large share of their income on rent and energy, which has prevented the restoration of consumer confidence, especially in large cities where housing costs have reached new heights and the pressure on the middle class has become more noticeable. Thus, the gap between the numbers and public sentiment has widened throughout the year, and the British economy, in the public narrative, was not booming but suffering from a kind of chronic fatigue.
During this period, the government tried to contain inflation while preventing a collapse in growth by combining contractionary fiscal policies and targeted support, but the outcome of this path led more than anything to a situation resembling a soft recession, an economy that has overcome an acute crisis but has not been freed from structural knots. There was no clear sign of prosperity, nor was the cost of living pressure lifted from the people’s shoulders, and the continuation of the gray situation put the British economy in a position at the end of 2025 where any new shock could push it back into a deeper crisis.