The week ahead 21 July 2025 - Job market slows further

What to watch out for in the UK economy and property market this week.

Last week saw speculation intensify that the Bank of England’s Monetary Policy Committee (MPC) may cut the Base Rate by another 25 bps in August, following data that confirmed the labour market has continued to slow. The unemployment rate increased to 4.7% in May, while the number of job vacancies fell in June. Currently, CPI inflation at 3.6% in June is well above the MPC’s 2.0% target, but the Bank of England’s own forecast is for it to decline later this year. If we add the disappointing GDP numbers for May to the slowdown in the jobs market, we believe there is enough evidence for the MPC to justify prioritising growth over fighting inflation, clearing a path to a rate cut in August.

Typically, the positive effects of a Base Rate cut take time to filter through to the economy – usually by a year to 18 months – and this summer we will reach the anniversary of the Bank’s first interest rate reduction of this cycle, which occurred in August 2024. So, by the autumn, we believe the economy could start to feel the benefit of the loosening of monetary policy. Recent business confidence surveys have pointed to a tentative improvement in sentiment, now firms have adapted to tax rises in April, plus the rise in the minimum wage. Consequently, we are forecasting GDP growth to be subdued for Q2 of this year, but then steadily gain momentum in Q3 and Q4.

Last week saw the government rollout an extensive programme of reforms for the financial sector, intended to ease the regulatory burden and encourage more retail investment. Among some commentators there was disappointment that many of the reforms are incremental changes, not a ‘bonfire’ of regulations. However, taken as a whole, it is a significant agenda for modernisation, which over the medium to long-term should boost growth for a major UK industry.

This week’s big economic news stories will be the preliminary UK PMI figures for July, and the UK retail sales data for June.

The PMI is a survey of UK businesses, who are questioned about trading conditions, then the results are converted to a score which if it is above 50 indicates the commercial side of the economy is growing. June saw a marked rebound for the index to 52.0, up from 50.3 in May, but we doubt there is much reason to suppose business conditions have strengthened further in July. So, our forecast is for no change at 52.0 – which, nevertheless indicates growth.

Turning to retail sales, the figures from the British Retail Consortium pointed to a recovery last month. In part, this was driven by the impact of the recent heatwaves, which encouraged sales of electric fans, sports equipment and food for barbecues. Consequently, we are forecasting robust retail sales growth for June.

Investment Focus – Industrial

At the half-year mark, big box investment volumes are disappointing, totalling £548 million with only £111 million transacted during Q2. This is 55% lower than the 5-year average. While some deals remain undisclosed — suggesting actual volumes may be higher — the data clearly reflects the impact of global economic uncertainty, combined with a lack of stock, on the industrial investment market. We do expect volumes to pick up as we move towards the end of the year as economic conditions are expected to improve. The MSCI capital growth index for industrial warehouses grew by 0.21% month-on-month in June, which was the fifteenth consecutive month of growth.

This week's figures

Thursday 24 July

UK Composite PMI Index, July

52.0 previous
52.0 forecast

The June figure at 52.0 was relatively strong, and possibly driven by relief that more compromises had been reached on US tariffs. We doubt there is any reason for activity to have strengthened further in July, so are predicting no change at 52.0.

ECB Interest Rate Decision, July

2.00% previous
2.00% forecast

We believe the ECB is probably now close to stabilising its policy rate, following seven cuts since September 2024, so are forecasting no change at this meeting, with possibly one more 25 bps reduction later this year.

Friday 25 July

UK Retail Sales Volume, m-on-m, June

-2.7% previous
1.8% forecast

After a weak May for retail sales, evidence suggests the hot weather in June caused a rebound in demand, both for food and non-food stores.