The week ahead 16 June 2025 - Chancellor announces £113 bn of investment
What to watch out for in the UK economy and property market this week.
The government last week announced a package of major investments, which promise to give the UK economy a Keynesian boost in the next few years, and over the long-term improve productivity. Around £113 billion is set to be invested in much-needed infrastructure, to improve transport in the regions, and to modernise and expand nuclear power generation, thus improving energy security and accelerating the transition to clean electricity. There was also money for the industries of tomorrow, with the research and development (R&D) budget set to rise to £22.5 billion per annum by the end of the current Parliament. The government estimates that every £1 invested in R&D generates £7 of uplift for the UK economy. Increased defence spending will boost the engineering, aeronautics and hi-tech sectors. Further analysis of the Spending Review can be found here and click here for AY SME comments on what it could mean for our clients.
The importance of the measures announced in the Spending Review were highlighted by other news last week. The latest GDP figures showed the economy contracted in April by -0.3% month-on-month, which was worse than the consensus forecast of -0.1%. There were a number of one-off factors weighing on the figures, but there is little doubt the economy has decelerated lately. While the coming months could see stop-go growth for GDP, the investments announced in the Spending Review persuade us that there is reason to feel confident on the medium- to long-term growth prospects of the UK economy.
This week’s big UK economic news story will be the Bank of England Monetary Policy Committee’s decision on the Base Rate, which will be announced on Thursday. We are not expecting any change at this meeting, although the disappointing GDP figures weigh in favour of a cut further down the line – perhaps in August when the Bank publishes its next set of forecasts.
On Friday, the UK retail sales for May will be released. So far this year, retail sales have come in mostly ahead of expectations, despite weak consumer confidence. However, recent data from the British Retail Consortium pointed to a deceleration in May, with fashion and big-ticket items particularly hit. We believe the May retail sales figures will make for difficult reading for non-food retailers, although this might be partially counter-balanced by stronger supermarket sales as cost conscious households choose to eat at home more.
Investment Focus – Housing Market
The most recent data suggests that housing market activity appears to be holding up well following the end of the stamp duty holiday. House prices rose 3.5% yr/yr in May according to Nationwide, while Bank of England figures showed mortgage approvals in April were only down by -4.9% compared to March (which in turn were only down -1.2%). Despite wider economic uncertainties in the UK and global economy, underlying conditions for potential home buyers in the UK remain reasonably supportive.
This week's figures
TUESDAY 17 JUNE
ZEW Euro Area Economic Sentiment Index, June
11.6 previous
6.1 forecast
Given a settlement between the EU and the US on tariffs has not yet been agreed, while concerns over the strength of the economy continue, we are forecasting a decline in sentiment this month.
THURSDAY 19 JUNE
Bank of England Base Rate Decision, June
4.25% previous
4.25% forecast
The April inflation figures were stronger than expected, although the latest GDP numbers were disappointing. So, rate setters are caught between high inflation and weak growth. We believe the Base Rate will remain unchanged at this meeting.
FRIDAY 20 June
UK Retail Sales, m-on-m, May
1.2%
-0.4% forecast
The BRC figures for May pointed to a slowdown for non-food stores, although in leaner times supermarkets can benefit as families eat out less often. We are forecasting a modest contraction on a month-on-month comparison.
