The week ahead 15 December 2025 - Poor UK GDP figures clears a path to a Base Rate cut
What to watch out for in the UK economy and property market this week.
This week sees the Bank of England Monetary Policy Committee (MPC) hold its rate setting meeting, with the decision scheduled for Thursday. While a cut of around 25 bps has been widely anticipated for some time, the latest UK GDP figures will add to the pressure on policymakers to act.
UK GDP in October contracted by -0.1% on a month-on-month comparison, which follows the -0.1% figure reported for September. Many commentators are attributing this to firms putting schemes on hold as they awaited the Chancellor’s Budget. If that is the case, then we could be looking at a negative reading for GDP in November as well. Construction activity fell in October, according to the GDP figures, and survey evidence for the sector in November has been disappointing.
On the consumer side of the economy, retail sales in October were hit by many shoppers deciding to delay purchases until Black Friday, which was in November. This shows consumers are in a frugal mood and require discounts to get them to spend.
When examining the above data, the MPC members will probably take the view that until we know whether firms increased activity once they heard the Budget in November, this factor should not be taken into account in setting interest rates. However, the retail sales data and consumer confidence surveys have made for difficult reading for some time now, and with pay growth slowing, the MPC is more likely to conclude this is something that needs addressing with a Base Rate cut. Also, that the Budget is now out of the way frees the MPC to act without drawing accusations of political interference.
Last week saw an article in the Financial Times that may provide the MPC rate setters with greater confidence that inflation will continue to slow. The FT reported that analysts are predicting a surge in oil supply next year. Indeed, Brent crude oil closed trading on Thursday below the $61.00 a barrel mark, down from $62.86 a week earlier, and well below the $75.93 recorded on 2nd January 2025. This should push down prices eventually at the petrol pump.
In other economic news, the US Federal Reserve cut its policy interest rate by 25 bps to 3.50%-3.75% last week. However, the board was divided on the decision. One rate setter favoured a 50 bps reduction, and two voted for no change.
As well as the MPC decision, this week also sees the release of the early ‘flash’ UK PMI figures for December. The PMI is a business activity index based on a survey of firms. The ‘flash’ release is drawn from survey returns received so far. However, this figure is being compiled earlier in the month than usual because of the approach of Christmas, so less survey returns will have been received.
On the one hand, the PMI will provide us with an early indication of whether firms have now ramped up activity in the aftermath of the Budget. On the other hand, given this month’s ‘flash’ PMI will be based on fewer survey returns than usual, we probably need to take it with a pinch of salt.
This week's figures
Tuesday 16 December
UK 'Flash' Composite PMI, December
51.2 previous
51.6 forecast
We believe that post-Budget some firms will have increased activity, although in such a short space of time there is unlikely to have been a rebound.
Thursday 17 December
Bank of England Interest Rate Decision, December
4.00% previous
3.75% forecast
With significant evidence pointing to a slowdown for the consumer-side of the economy, plus a softening labour market, we believe the MPC will opt for a 25 bps reduction in the Base Rate.
Thursday 17 December
ECB Interest Rate Decision, December
2.15% previous
2.15% forecast
The consensus view is that the ECB has now completed its round of interest rate cuts for this cycle, and therefore no change is expected at this meeting.
