The week ahead 19 May 2025 - UK GDP boosted by services and trade
What to watch out for in the UK economy and property market this week.
The Q1 UK GDP figures were stronger-than-expected with q-on-q growth reaching 0.7%, up from 0.1% in the previous quarter and above the consensus forecast of 0.6%. This was the strongest rate of growth among the G7 countries who have so far reported Q1 output data. Much of the media coverage focussed on an improvement in trade that was partly attributed to US firms buying goods in March ahead of the imposition of higher tariffs on imports in April –effectively pulling forward activity into Q1 at the expense of Q2.
While this was undoubtedly a factor behind the strong GDP figures, we feel commentators over-emphasised this point, as the domestic economy also displayed strength in Q1. For instance, the retail trade saw 1.5% growth during the quarter, while consumer-facing service industries expanded by 0.9%. This suggests the consumer side of the economy is performing better than had been previously supposed, as households benefit from cuts to the Base Rate and the rise in the minimum wage. Nevertheless, we do expect Q2 to see a deceleration for UK GDP growth due to global risks hitting sentiment.
On the subject of the US tariffs, last week saw the major American share indices exceed the levels seen just before ‘Liberation Day’ –effectively reversing their losses in April. This was partly thanks to mounting evidence the Trump administration is moderating its policy. For instance, a deal was announced to slash tariffs on Chinese goods from 145% to 30% for 90 days, buying more time for trade negotiations. Overall, investors appear more re-assured on the issue of US tariffs than was the case a month ago.
This week sees the release of preliminary PMI data for a range of major economies, including the UK. The convention of the PMI index is a reading below the 50 mark suggests the commercial side of the economy is contracting, and for the UK in April the figure was 48.5. This coincided with the announcement of US tariffs, plus the introduction of higher rates of National Insurance for employers and the hike in the minimum wage. This makes calling the UK PMI numbers for May complex, as there has been progress on the tariff issue, but the higher taxes and increased payroll costs remain. We are forecasting the UK compositive PMI index to rise, but not by enough to lift it above the 50 mark.
Investment Focus – Retail Property
Year-to-date, retail investment volumes are bucking the trend of subdued activity within the commercial property sector. There has been a significant increase in activity compared to the same period last year, totalling £3.9 billion –an 82% rise. This has been driven by NorgesBank Investment Management’s acquisition of a 25% stake in Shaftesbury Capital. According to Real Capital Analytics, the retail portion of this transaction is valued at approximately £1.9 billion. However, if you exclude this deal total volumes are down 7%. Looking at the retail subsectors, Shopping Centre activity declined from £1.5 billion to £1 billion, whereas Retail Parks saw a rise in activity from £441 million to £626 million –a 42% uplift, demonstrating that it remains an in-demand asset class for investors. We expect Retail Parks, prime Shopping Centres and prime Shops to remain of interest to investors throughout 2025, particularly as interest rates are predicted to be cut further.
This week's figures
WEDNESDAY 21 May
UK CPI Inflation Rate, April
2.6% previous | 3.3% forecast
April saw a 6.4% hike in the Ofgem energy price cap, which is widely expected to push up CPI inflation. However, many economists expect the rise in inflation to be short-lived.
THURSDAY 22 May
UK ‘flash’ Composite PMI, May
48.5 previous | 49.2 forecast
We believe news of a UK / US trade deal and the Bank of England Base Rate cut will have improved sentiment during May, although risks remain high persuading us to predict a rise in the PMI but to a level short of the pivotal 50 mark.
THUSDAY 22 May
Eurozone ‘flash’ Composite PMI, May
50.4 previous | 50.6 forecast
The Eurozone economy is starting to feel the benefits on lower interest rates and reduced inflation. Nevertheless, with no word yet on a US / EU deal on tariffs, we are forecasting just a modest improvement in the May PMI figure.
For more information, please contact James Roberts, Director, Market Intelligence.
+44 (0)20 7911 2580