Few film analogies are used more by columnists than The Good, the Bad and the Ugly. In fact, I suspect many people who use it have never seen that classic spaghetti western, directed by Sergio Leone, starring Clint Eastwood, featuring the haunting music of Ennio Morricone and made as long ago as 1966. I have seen it, in the cinema no less — I was very young — but I am not going to fall into the cliché trap.

So, this piece will focus on the good and the bad of 2025, but there will be no ugliness. It is not the season for it.

If we take five measures of economic performance — growth, inflation, the labour market, external trade and the public finances — should we say that 2025 was good or bad for the UK economy?

Let me take them in turn. 2024 ended much like 2025 is, with weak growth and fears of recession. The way this year started, however, was good. I wrote here in March that the economy appeared to be turning a corner, was roundly abused for it, but a few weeks later official figures showed a first quarter rise in gross domestic product (GDP) of 0.7 per cent, much better than expected.

That was as good as it got. That strong first quarter, some of which may have been due to exports being brought forward ahead of Donald Trump’s tariffs, gave way to 0.3 per cent in the second quarter, an even feebler 0.1 per cent in the third and perhaps nothing at all in the current quarter, which the Bank of England expects.

Growth was weak enough in the second half to be blown off course by the cyberattack on Jaguar Land Rover and harmful pre-budget speculation. It may also be a feature of the GDP statistics that they produce frontloaded growth; the same thing happened last year. So, the UK went from having the strongest growth in the G7 in the first half to barely registering a pulse in the second.

That strong first quarter led to a general upward revision in growth forecasts for the UK economy this year, including a shift from 1 to 1.5 per cent for the Office for Budget Responsibility (OBR) in its budget-time forecast last month. But the economy’s weak momentum as we move towards 2026 mean growth forecasts for the coming year have in many cases been revised lower.

• What do you get the troubled UK economy for Christmas?

If the story of growth was lopsided, that of inflation was one of stickiness. In November last year, the Bank of England predicted that inflation would peak at 2.75 per cent this year and end the year at 2.7 per cent. In the event, the peak was 3.8 per cent, in July-September, before dropping to 3.2 per cent in November, above the 3 per cent rate at which it started the year.

Inflation rose more than expected because, according to the Bank governor Andrew Bailey, big increases in employer national insurance (NI) and the national living wage – the minimum wage – led to firms pushing up prices to cover additional costs. Food price inflation peaked at more than 5 per cent.

Though UK inflation ended the year on a downward trend, it also remained the highest among leading industrial countries, the 3.2 per cent November rate comparing with 2.7 per cent in America, 2.3 per cent in Germany and just 0.8 per cent in France.

Even so, the Bank of England found itself able to cut the official interest rates four times this year, in February, May, August and this month, reducing the rate from 4.75 to 3.75 per cent. Each decision was made on a split vote, although the nature of that split changed over the year. The February rate cut to 4.5 per cent saw seven votes for that outcome, and two for a bigger reduction to 4.25 per cent. In May there were two votes for no change, two for a bigger cut to 4 per cent and five for 4.25 per cent, which was the outcome.

In August and earlier this month, the Bank’s monetary policy committee (MPC) returned to more familiar territory, in each case with 5-4 votes for quarter-point rate reductions. Those closer votes are the shape of things to come.

• UK borrowing rises to second-highest level ever

One of the reasons the Bank cut rate was a softening of the labour market, with the unemployment rate rising to 5.1 per cent, from 4.4 per cent at the turn of the year, though alongside a drop in the economic inactivity rate from 21.5 to 21 per cent. In the 12 months to November the number of payrolled employees was down by 171,000, or 0.6 per cent.

If there has been a disappointment, certainly for the “hawks” on the MPC, it is that pay pressures have not subsided as rapidly as hoped. Private sector pay growth fell to 4 per cent by the end of the year, though public sector pay was running stronger, 7.7 per cent, partly thanks to the timing of settlements.

What about the UK’s twin deficits? The UK trade deficit, for goods and services combined, is not ringing any alarm bells, despite Trump’s tariffs, thanks to the strength of service sector exports. The trade deficit in the 12 months to October, the latest figures, was £16.8 billion, lower than the £28.5 billion of the previous 12 months.

What we should be worried about are our exports of goods. In the latest three months, adjusted for inflation, exports of goods were down on the previous three months, lower on a year earlier, and 24 per cent down on the pre-Brexit, pre-pandemic final quarter of 2019.

We should also be worried about the state of the public finances. Not so long ago, the path for public borrowing, the budget deficit, appeared clear. After rising to record levels during the pandemic, £311 billion in 2020-21, it would trend lower as normal economic circumstances returned. It has not happened.

Borrowing fell to £120 billion in 2021-22 but has risen in every year since, to £152.6 billion in 2024-25, and so far this year it is running above those levels, though the Office for Budget Responsibility predicts £138 billion for 2025-26.

This year has been a bad one for fiscal policy, as I described last week, and there is no sense yet that the government has got to grips with the public finances. The state of them is likely to return to haunt us again.

So, the verdict on the economy in 2025 is that, while it was not uniformly bleak, the bad outweighed the good. There is definite room for improvement if things are not to get ugly

PS

As promised, some more jokes, none of which came from this year’s Christmas crackers, and a reminder that you have a week to send in answers to the Christmas quiz I set last Sunday.
John Manning, who I was at school with many years ago, starts the ball rolling this week with: “I’ve a Polish friend who’s a sound technician. And a Czech one too, Czech one too.”

Richard Cole, no relation to the Reverend Coles who now writes books, and no reverend judging by some of his jokes, sent a clever one: “What is the difference between being ‘literal’ and a ‘kleptomaniac’? A literalist takes things literally. A kleptomaniac takes things, literally.

The only joke test for me is if I have heard them before, and usually I haven’t, so I like this from Brian Smith. “A guy was in a pub just before Christmas and had a lot to drink, so he decided to leave his car and take a taxi. Sure enough, down the road the police were pulling over every car. He was so pleased to drive straight past as he had never driven a taxi before.”

David Baker continues last week’s fridge theme, with this: “When I arrived home, a little bit late last Friday night, there was a hand-written note from my wife on the fridge door. It said: “This is not working, I cannot stand it, and I have gone to my sister’s.” When I opened the door, the light came on and everything was nicely chilled — so I do not know what she’s fussing about.”

After all that, Ian Webster lifts the tone, with an apt quote from Lord Chesterfield in 1756. “I could not help reflecting in my way upon the singular ill-luck of this my dear country, which as long as ever I remember it, and as far back as I have read, has always been governed by the only two or three people, out of two or three millions, totally incapable of governing, and unfit to be trusted.”

david.smith@sunday-times.co.uk