The week ahead 08 September 2025 - Gilt yields see rollercoaster ride
What to watch out for in the UK economy and property market this week.
There were some very contradictory signals from the gilt market last week, as yields rose sharply on Tuesday then fell over the course of the rest of the week. The 10-year gilt yield opened trading on Monday last week at 4.74%, leapt to 4.81% the next day, but by Friday mid-afternoon had declined to 4.67% - so lower than at the start of the week. Tuesday had seen a surge of concerns over the strength of the UK government’s finances, plus there was general pessimism on bonds issued by major economies. However, Tuesday itself also saw a successful gilt sale, which was ten times oversubscribed, reassuring the markets on the depth of demand for British government bonds. Then encouraging news on the UK economy appears to have calmed investor nerves during the rest of the week.
Turning to other news, the final reading of the UK PMI index for August saw the figures revised higher last week. The PMI is a survey of firms, where the results are converted into a score whose convention is a reading over 50 points to expansion for the commercial side of the economy. The first draft figure for August was 53.0, but this was revised upwards to 53.5 last week, compared to 51.5 for July. The PMI data also showed the growing gap in performance between the services and manufacturing sectors. The first draft services figure for August was 53.6, but this increased to 54.2 in the final edition. In contrast, having initially read at 47.3 for August, the manufacturing PMI was lowered to 47.0.
However, there was some good news for manufacturing last week, after UK shipyards won a £10 billion order to build warships for the Norwegian navy. The Financial Times also reported negotiations are in progress on orders for ships for the Danish and Swedish navies.
For the UK retail sector, there was some mixed news. July saw retail sales volumes rise by a better-than-expected 0.6% month-on-month. However, the data for some previous months was revised, in most cases downwards.
This week sees the release of monthly GDP figures for the UK, and the ECB announces its interest rate decision on Thursday.
On the ECB decision, inflation in the Eurozone at 2.1% is now almost at target, although the signals on growth vary enormously if one looks at the component economies around the bloc. GDP increased by 0.3% quarter-on-quarter in France in Q2 2025, and was up by an impressive 0.7% in Spain. However, other major economies contracted in the very same quarter – Italy by -0.1% and Germany by -0.3%. With such disparities in evidence, a ‘stand still’ approach seems logical, so we are predicting interest rates will remain unchanged.
Turning to UK GDP, for all the gloomy economic commentary found in the media lately, survey indicators, like the PMI index, for the summer have been relatively upbeat. That said, the June GDP figure was surprisingly strong, and it seems unlikely that will be matched in July. We believe the data will show continued growth for the UK economy, driven by the services sector, but at a slower pace than that recorded in June.
This week's figures
Thursday 11 September
ECB Interest Rate Decision, September
2.0% previous
2.0% forecast
Inflation at 2.1% is now almost at target, but we are seeing very different levels of growth achieved around the Euro Area. We believe interest rates will remain unchanged.
Friday 12 September
UK GDP Growth, m-on-m, July
0.4% previous
0.2% forecast
Consistent with recent survey indicators, which point to growth, we are predicting another rise for GDP, albeit at a slower pace than that recorded in June.
