The week ahead 15 September 2025 - UK GDP slows on weak production data
What to watch out for in the UK economy and property market this week.
UK GDP growth in the three months to July was 0.2%, compared to 0.3% in the three months to June. The figures highlighted an ongoing divide within the economy, whereby the services sector expanded by 0.4% over the three-month period, but the production sector contracted by -1.3%. Within production, output for the manufacturing sub-sector declined by -1.1%, while mining and quarrying (essentially, the North Sea oil and gas fields) fell by -1.8%. The construction sector saw a 0.6% increase, driven by a surge in new work involving infrastructure projects.
Overall, it appears growth in the UK economy is patchy, and manufacturing continues to struggle. It is though good news that we are starting to see the impact of the £113 billion of new infrastructure projects announced in the government’s spending review earlier this year.
Turning to the financial markets, given recent volatility for gilt yields , there were encouraging signs last week on demand for UK government bonds. Three sales of gilts were held by the Debt Management Office, and all were successful and significantly more than three times oversubscribed. While gilt yields have moved up markedly in the last 12 months, matching the global trend of rising bond yields, there is no sign the UK government is having any difficulty raising money from the financial markets. Last Thursday, the 10-year gilt yield stood at 4.61%, which was down from 4.73% a week earlier, but well above the 3.77% seen a year ago.
As was expected, the ECB left Eurozone interest rates steady at 2.0% at its policy meeting last week. The ECB President has said the central bank is in “wait-and-watch” mode, and with inflation close to target at 2.1%, there was no pressure for any change.
This a big week for the UK economy, with data out on the labour market and inflation; plus, the Bank of England is holding its rate setting meeting. The US Federal Reserve will also make its interest rate announcement this week.
On the central bank policy meetings, we are expecting the Bank of England and the Fed to follow divergent paths. Evidence is building there has been an abrupt slowdown in the US jobs market, so a 25 bps interest rate cut is anticipated from the Fed. In contrast, we believe the Bank of England will leave the Base Rate unchanged. However, we suspect there may be an announcement on either a slowing or pause of the Bank’s programme of selling gilts from its balance sheet. Such a move would ease recent pressure on gilt yields.
Turning to the UK labour market data, most employment indicators have made for downbeat reading lately. Given the rather mixed GDP data for July we are predicting a small uptick for the unemployment rate.
This week's figures
Tuesday 16 September
UK Unemployment Rate, July
4.7% previous
4.8% forecast
The UK labour market has slowed this year, and the July GDP figures did point to weakness in the production side of the economy. So, we are forecasting the unemployment rate to have increased slightly in July.
Wednesday 17 September
UK CPI Inflation, y-on-y, August
3.8% previous
3.9% forecast
We believe food and energy price rises pushed inflation higher in August. However, we concur with the Bank of England’s forecast that inflation will slow in Q4 of this year.
Wednesday 17 September
US Federal Reserve Interest Rate Decision, September
4.25% - 4.50% previous
4.00% - 4.25% forecast
Given the recent signs a slowdown is occurring in the US labour market, a 25 bps reduction for the Fed’s policy rate is widely expected.
Thursday 18 September
Bank of England Interest Rate Decision, September
4.00% previous
4.00% forecast
We believe the Bank of England will take the view that while inflation is elevated and the economy is growing there is little case for a Base Rate cut at this meeting. We are expecting another reduction of 25 bps though later in the year.
