The week ahead 26 August 2025 - Inflation rises, but so does business activity
What to watch out for in the UK economy and property market this week.
Last week saw a continuation of the recent trend of mixed news on the UK economy, although we feel there is now slightly more positive news than negative inside that mix.
CPI inflation in July was 3.8%, which is up on the June figure of 3.6% and slightly ahead of the 3.7% that the City was predicting. Rises for food prices and air fares drove the increase, although these are volatile items within the basket of goods used to gauge inflation. An opinion poll from More in Common found that the rising cost of living was viewed by survey respondents as the most important issue facing the country, and by a large margin. However, the latest consumer confidence index did show a small improvement, rising from -19 in July to -17 in August.
Turning to the commercial side of the economy, the preliminary composite UK PMI index – which measures business activity levels – came in stronger than expected. The reading for August was 53.0, up from 51.5 in July and well ahead of the consensus forecast of 51.6. A reading of over the 50.0 mark indicates an expanding economy. However, there was a contrast in performance between the indices for services (which rose from 51.8 in July to 53.6 in August) and manufacturing (which fell from 48.0 to 47.3). This strengthens our belief that while the UK economy is gradually gaining momentum after a slowdown back in the spring, the recovery is patchy and weighted towards technology and business services industries.
There was also some rare good news on the UK government’s finances, with public sector debt rising by £1.1 billion in July 2025, compared to £3.6 billion in July of last year. This was less than the consensus forecast of £2.6 billion.
This week sees data released on UK house prices in August from Nationwide. Other recent indicators point to a housing market which has successfully weathered the change in the SDLT regime introduced in April, with growth reported in the number of mortgage approvals in May and June. Also, the last month has seen mortgage rates decline. Consequently, we are forecasting another rise for house prices in August, and predicting further increases in the coming months.
Also, data is out this week on loans to companies in the Euro Area in July. The bloc’s economy has been decelerating, indeed Germany’s Q2 GDP growth was revised downwards last week from -0.1% to -0.3%. However, lower interest rates, following eight ECB rate cuts since June 2024, have made debt more affordable. We expect to see a small increase in the growth rate.
This week's figures
Thursday 28 August
Euro Area Loans to Companies, y-on-y, July
2.7% previous
2.8% forecast
Recent survey evidence points to a sluggish economy in the Eurozone, but with some improvement. Consequently, we are forecasting a slight increase in the growth rate for loans.
Friday 29 August
Nationwide House Price Index, m-on-m, August
0.6% previous
0.6% forecast
With mortgage rates down and warm weather this summer encouraging viewings, we believe there was another rise for house price growth in August, and similar in size to that seen in July.
Friday 29 August
UK Car Production, July
69k previous
69k forecast
Car production was low in April and May, but rebounded in June. A number of distortions to the figures have now started to recede, so we expect to see a similar car production figure for July as was seen in June.
