UK GDP unlikely to meet BoE forecast as Chancellor looks to reassure markets
|Britain’s economy posted barely noticeable growth of just 0.1% in August, with the recent tax hikes, higher UK inflation and jitters abroad continuing to dampen activity. It's now tough to see how the economy meets the Bank of England’s third quarter growth estimate of 0.4%, which we see as increasingly optimistic, particularly with Autumn Budget uncertainty likely to have kept growth tethered in September.
It’s not all doom and gloom, as upward revisions to previous GDP data suggests that the UK economy is actually moderately larger than anticipated a few months ago. While this could take some pressure off the government to tap the public purse, Chancellor Reeves still faces an uphill battle to plug the fiscal gap and reassure markets that she has a credible plan for growth. We expect to see an amalgam of tax increases next month, but investors will be clamouring for commitments to at least mild spending cuts, which could limit the hit to growth in 2026.
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