The week ahead 28 April 2025 - Slowing economy builds case for a rate cut
What to watch out for in the UK economy and property market this week.
Disappointing PMI data for April confirmed the UK economy is in a slowdown, adding to the pressure on the Bank of England Monetary Policy Committee (MPC) to cut the Base Rate. The convention of the PMI index is that a reading under the 50 mark indicates the commercial side of the economy is contracting, and the preliminary index figure for April was 48.2, down from 51.5 in March. The manufacturing sector has been under 50 for several months now, but April saw the services sector also drop below 50. Firms reported a decline in new work and many cited the uncertainty caused by the new US tariffs.
This follows a greater-than-expected decline for UK CPI inflation in March. So, with inflation decelerating and evidence mounting the economy is slowing, in our opinion the case is now building for the MPC to reduce the Base Rate at its policy meeting next week. We are forecasting a 25 bps cut, which would take the Base Rate from 4.5% currently to 4.25%. Speaking in Washington DC last week, the Bank of England Governor Andrew Bailey said policymakers need to “take seriously” the risks faced by the UK economy as a result of the new American tariffs. We view this as a hint that a cut is coming.
Media speculation is building that a UK / US trade deal is close to being agreed, which potentially could ease some of the impact of the above-mentioned tariffs. Such a deal would also provide a much-needed boost to sentiment.
UK retail sales grew by 0.4% in March, which was down on the 0.7% reported in February but well above the consensus forecast of a -0.4% contraction. The approach of warmer weather appears to have buoyed the retail sector with strong figures for clothes stores and garden centres. However, analysts are concerned about the near-term outlook for UK retail given the GfK consumer confidence index recorded a fall from -19 in March to -23 in April.
This week sees the release of Q1 GDP figures for the US and the Euro Area, with both difficult to call. For the US economy, the indicators we have for Q1 paint a very mixed picture and even contradict each other. For instance, the PMI index weakened in January and February, but rebounded in March. Conversely, the Atlanta Federal Reserve’s ‘GDPNow’ forecast model has suggested the US economy contracted in March. We are forecasting an overall positive US GDP growth figure for Q1, but a further deceleration in the coming months for the economy looks likely.
For the Eurozone, the US is a major export market, but the Q1 numbers pre-date the April imposition of tariffs and American customers might have rush purchased European goods in February and March. So, this may have supported Q1 GDP growth, albeit only in the short-term, with more of a negative impact to be expected in the Q2 GDP figures.
Investment Focus -Industrial Property
Commercial property investment volumes remain subdued year-to-date in 2025, with the number of industrial big-box transactions declining by 21% compared to the same period last year. However, there has been some positive news in relation to the value of these deals, which are 17% higher than 2024 levels, totalling £419 million, driven by an increase in the number of portfolio deals completed. Volumes are 55% lower than the five-year average figure of £938 million, due to the huge levels of activity seen during 2021. Despite investor appetite for the sector, a lack of available stock could hinder activity in 2025 if property owners continue to hold on to assets during this current period of economic uncertainty.
This week's figures
WEDNESDAY 30 APRIL
US GDP Growth, q-on-q annualised, Q1
2.4% previous
0.4% forecast
Survey evidence points to volatility in business activity in the first three months on 2025, while the Atlanta Fed’s ‘GDPNow’ model predicted growth turned negative in March. Consequently, we are forecasting a deceleration for GDP growth in the first quarter.
Euro Area GDP Growth, q-on-q, Q1
0.2% previous
0.1% forecast
While the US tariffs are bad news for exports in the medium-term, Eurozone firms may have seen rush orders in Q1 by American customers ahead of the April deadline. Also, interest rates are falling, persuading us to predict modest Euro Area growth in Q1.
FRIDAY 2 MAY
US Non-Farm Payrolls, April
228k previous
150k forecast
Forecasting US payrolls is a difficult call for April, as normally the jobs market time lags the economy and indicators for March were mixed. Our forecast is for recruitment to have slowed in April.
