The week ahead 18 August 2025 - UK GDP growth beats forecasts
What to watch out for in the UK economy and property market this week.
UK GDP returned to growth in June, reaching 0.4% on a month-on-month comparison, which was ahead of the consensus forecast of 0.1%. The economy had contracted in April and May, but the rebound in June lifted the quarterly GDP figures into the black, resulting in Q2 growth of 0.3%. Not only was this well ahead of forecast (0.1%), but it outpaced some of the larger European economies, such as Germany (-0.1%) and Italy (-0.1%). A major contributor to growth was the Information and Communication sector, which is encouraging given it contains many high productivity industries.
The upbeat news on GDP followed employment data that suggested the worst of the slowdown for the jobs market may have now occurred. The unemployment rate remained unchanged at 4.7%, breaking a three-month run of increases. While the number of workers on payrolls shrank by -8,000 in July, that is down from -22,000 in May and -26,000 in June. The employment market is still cooling, but at a slower pace, and we believe it might begin tentatively strengthening again in the final quarter of the year.
This supports our view that June and July marked a turning point for the UK economy, as firms shrugged off global risks and focussed on growing their businesses. However, it should also be remembered that consumers remain cautious, are building up savings and seem reluctant to spend other than when offered a discount. Also, as we move closer to the autumn budget, speculation will increase on what tax rises are coming, thus dampening sentiment.
Nevertheless, the pound strengthened against the dollar last week, and the FTSE All Share index rose, reflecting a new air of cautious optimism.
This is a big week for data on the UK economy, with inflation, business activity and retail sales figures being released.
A further rise in inflation is generally expected in Wednesday’s CPI figures, although that is unlikely to concern the Bank of England, which is expecting a deceleration in price growth during the autumn. However, if inflation were to come in ahead of expectations, that could persuade rate setters to be slower to cut the Base Rate in the future. The next Monetary Policy Committee meeting is in September, when we are forecasting no change, followed by a 25 bps cut in either the November or December meeting.
Thursday will see PMI index data released for a raft of countries, including the UK. The PMI is based on a survey of firms, answering questions on trading conditions, the results of which form a score which if it is above 50 suggests the commercial side of the economy is growing. The UK PMI in July read at 51.5, pointing to growth, but at an unremarkable pace. We are expecting only a slight improvement.
Turning to retail sales, recent data on the high street shows growth, but at slow and decelerating pace. Activity this year has also been highly variable, and last week saw Claire’s Accessories (a high street chain which sells fashion accessories) file for administration. Warm weather in July may have supported sales for supermarkets and clothes shops.
This week's figures
Wednesday 20 August
UK CPI Inflation, y-on-y, July
3.6% previous
4.0% forecast
Food price inflation and a rise for petrol are expected to push UK inflation higher still, although the Bank of England is standing by its forecast that price growth will be slowing again by Q4.
Thursday 21 August
UK ‘Flash’ Composite PMI, August
51.5 previous
51.6 forecast
We believe the fresh momentum for the economy in June and July has probably carried on into August, but contradictory business confidence surveys lately suggest growth may be patchy.
Friday 22 August
UK Retail Sales, y-on-y, July
1.7% previous
1.5% forecast
Most measures portray the consumer as cautious and usually requiring discounts to be tempted into spending. On the other hand, the hot weather probably supported supermarket and fashion sales.
