UK PMIs suggest economy will grind to a halt in H2 25 but reasons for cautious optimism
Britain’s economy looks destined to slow abruptly in the second quarter of the year, following an impressive rebound in the first three months of 2025.
The UK composite PMI remained stuck below the level of 50 for the second straight month in May, following stagnation in the services sector and a sharp downturn in manufacturing.
While concerns surrounding US tariffs may be partly weighing on business confidence, we think that it would be far too simplistic to merely lump the blame on President Trump’s doorstep.
We see the April hike to business tax rates and the national minimum wage as far more pressing issues for British firms, which have been saddled with hefty additional costs at a time when inflation remains high and global uncertainty is on the rise.
We think that there are reasons for cautious optimism, however. Labour’s push for closer ties with the European Union could provide a fillip for growth, and the UK economy appears well shielded from the direct impact of the tariffs given a lack of dependence on the export of goods.
Sterling should be well placed to perform well in this environment, and it remains one of our favoured major currencies in 2025.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
