The week ahead 07 July 2025 - Westminster drama overshadows green shoots for the economy
What to watch out for in the UK economy and property market this week.
Gilts (UK government bonds) had a rollercoaster ride last week, as they sold off on Wednesday on fears the Chancellor might be sacked; then rallied on Thursday when the Prime Minister pledged unambiguously to keep her at the Treasury. UK politics appears to be matching the pattern in the US where the bond market is asserting pressure on the government to stick to the path of economic orthodoxy. That suggests the Chancellor’s fiscal rules will not be diluted, so the likelihood of tax rises in the autumn budget has increased.
However, the Westminster drama overshadowed some positive news for the British economy. The UK composite PMI, having read at 50.8 in the preliminary draft for June, was revised upwards to 52.0 in the final version. The convention of the index is that a reading above 50 points to private sector growth. So, a figure of 52.0 suggests firms are shrugging off the nervousness that characterised April and May and are expanding. Separately, the Lloyds Bank Business Barometer showed confidence on the outlook hit a nine-year high in June. Encouragingly, 60% of the companies surveyed said they planned to increase headcount in the next year, which is good news for commercial property markets.
Across the Atlantic, data showed job creation in America has held up better than expected since the announcement of new tariffs. US non-farm payrolls increased by 149,000 posts in June, exceeding the consensus forecast of 110,000. However, the figures were supported by strong recruitment in the public sector, particularly in education. In contrast, the number of new private sector roles created slowed from 137,000 in May to 74,000 in June. This was less than forecast.
This week sees the publication of monthly GDP figures for the UK for May, and the data we have so far for that month is a mixed bag. The retail sales numbers for May pointed to a decline, and there was a fall in output for the car manufacturing industry. In contrast, both the PMI and consumer confidence indices reported an improvement. Also, April’s GDP figures contained a number of exceptional downwards pressures that are unlikely to have reoccurred in May. Our forecast is for weak growth to be reported, although we remain more upbeat on medium to long-term growth prospects for the UK economy, which we believe will be driven by upcoming infrastructure spending and future Bank of England rate cuts.
Investment Focus – Retail Property
Provisional data for the first half of the year from Real Capital Analytics shows that retail investment volumes have declined by 11% compared to the same period last year. Volumes totalled £2.7 billion, although it is worth noting that deal data for June is still being analysed so this figure is likely to rise. There has been a notable decline in both Shopping Centre transactions, down 16% to £833 million and in Standard Shops, down 23% to £1 billion. It is much more positive news for retail parks though, where investment volumes increased 15% year on year, to £867 million. Compared to this time last year, according to MSCI, equivalent yields have moved in for both Retail Parks (by 30bps to 6.8%) and Standard Shops (by 60bps to 8.2%), however they did move out by 20bps for Shopping Centres, to 10.2%.
This week's figures
TUESDAY 8 JULY
NFIB US Business Optimism, June
98.8 previous
99.1 forecast
This index measures business confidence for small firms. These companies tend to be more focussed on the domestic market, so recent data showing the US economy holding up better than expected suggests the index may have risen in June.
FRIDAY 11 JULY
UK GDP Growth, m-on-m, May
-0.3% previous
0.1% forecast
The data we have so far for May paints a mixed picture of the strength of the economy, so we are forecasting marginal growth driven by the services sector.
