Resilient UK economy eases pressure on Bank of England and belies bleak outlook
|He said: “The UK economy showed surprise resilience in the second quarter, dashing expectations that growth had ground to a near total halt. We are tempering our optimism, however, as the modest 0.3% expansion still represents an abrupt slowdown relative to what appears to have been a one-off boom earlier in the year.
Rising costs from higher national insurance taxes and the hike to the minimum wage dampened business activity in Q2, while exports dropped following the introduction of Trump’s tariffs. Households are also continuing to be squeezed by the fall in real income growth and the worrisome downturn in the jobs market.
The outlook for the rest of the year is not overly encouraging. Cooling labour market conditions and the looming threat of further tax hikes will likely dampen consumer spending activity. Falling borrowing costs, particularly mortgage rates, and the expected easing in UK inflation, which is predicted to peak in September should, however, offer some relief.
The stronger-than-expected GDP data should ease pressure on the Bank of England to continue cutting rates, with markets now bracing for a pause at the next couple of MPC meetings in September and November. We think that this should keep the pound relatively well supported during the remainder of 2025.
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