The UK economy grew in the final quarter of last year, “largely” due to improved growth in the service sector.

The Office for National Statistics (ONS) reported a 0.1% rise in gross domestic product (GDP) during the fourth quarter.

Additionally, monthly real Gross domestic product (GDP) was up 0.4% in December compared to the 0.1% that had been anticipated.

Although this news comes as a pleasant surprise as many were predicting a contraction of 0.1%, “the outlook is still concerning”.

Quilter Investors investment strategist Lindsay James said: “This morning’s figures are a little better than expected, still the forecasts for the year ahead have been adjusted to lower levels. The Bank of England has slashed its forecasts in half from 1.5% to 0.75% growth this year, leaving OBR forecasts from October – which projected 2% growth in 2025 and 1.8% in 2026 – looking very out of kilter.”

J.P. Morgan owned digital wealth manager Nutmeg investment strategist Scott Gardner added: “A pleasant surprise, but we’re not out of the woods yet. Beneath the surface of these latest figures, domestic demand via consumption and business investment was weaker than expected. What will worry some is that we are also yet to see the full impact of the measures announced in the Autumn Budget including changes to National Insurance contributions.

“Those with a more optimistic outlook will hope this is a sign we’re over the worst; while others may fear this was a small period of unexpected growth and a more prolonged UK economic slowdown may stretch well into this year.”

Abrdn deputy chief economist Luke Bartholomew said: “While still very weak in absolute terms, today’s GDP numbers were much better than expected and may act as something of a narrative break. Certainly it is difficult to see the economy slipping into a technical recession in the near term now.

“Nonetheless, it is still very likely that the OBR will need to sharply downgrade its growth forecasts, putting more pressure on the chancellor to meet her fiscal rules. And there are still material headwinds from the upcoming National Insurance increase, which is likely to weigh on employment and push up on inflation. So further gradual interest rate cuts are still likely.”