The UK economy has narrowly avoided a prolonged downturn, posting modest growth in the third quarter of 2025. According to the Office for National Statistics (ONS), gross domestic product (GDP) increased by 0.2% between July and September, marking a reversal from the contraction seen in the first half of the year.
Data Centre Construction Fuels Economic Turnaround
The return to growth was powered by a significant and unexpected boom in the construction of data centres. Investment in this sector surged, contributing substantially to the overall figures. This uptick in business investment provided a crucial counterbalance to other, weaker areas of the economy and was a primary driver behind the quarterly expansion.
Alongside this, a 0.3% rise in household spending offered a further, welcome boost. This increase in consumer activity, though cautious, suggests some resilience among UK consumers despite ongoing cost-of-living pressures. The services sector, a core component of the UK economy, also saw growth, rising by 0.3% during the quarter.
Mixed Signals and the Shadow of Recession
Despite the positive headline figure, the underlying data presents a mixed picture. The production sector, which includes manufacturing, continued to struggle, contracting by 0.4%. Furthermore, the ONS revised its estimate for the second quarter of 2025, stating the economy shrank by 0.1% rather than the previously reported 0.2%.
This revision is significant because it means the UK experienced a technical recession – defined as two consecutive quarters of negative growth – in the first half of 2025, with Q1 seeing a 0.3% contraction followed by the revised 0.1% fall in Q2. The Q3 growth of 0.2% therefore represents an exit from that short-lived recessionary period.
Economists and analysts have reacted with cautious optimism. While the data confirms the recession was shallow, the fragility of the recovery is widely noted. The growth remains below the economy's pre-pandemic trend, and the reliance on a single, volatile sector like data centre construction raises questions about the durability of the rebound.
Outlook and Policy Implications
The latest GDP figures will be carefully scrutinised by the Bank of England and the Treasury. The combination of weak but positive growth, coupled with persistent underlying challenges, creates a complex backdrop for monetary and fiscal policy.
Key points from the ONS report include:
- GDP grew by 0.2% in Q3 2025.
- A boom in data centre construction was a major growth contributor.
- Household consumption expenditure rose by 0.3%.
- The UK was in a technical recession in H1 2025 (Q1: -0.3%, Q2 revised: -0.1%).
- The services sector grew by 0.3%, while production fell by 0.4%.
Looking ahead, the focus will be on whether consumer spending can maintain its momentum and if business investment will broaden beyond the data centre boom. The path for interest rates and government economic strategy will be heavily influenced by whether this quarter's growth is the start of a sustained recovery or merely a temporary respite.
