The week ahead 27 May 2025 - Economy posts mixed data for April and May
What to watch out for in the UK economy and property market this week.
The latest indicators painted a mixed picture of the UK economy, although there were some encouraging signs. The preliminary UK composite PMI reading for May was 49.4, which was up on the April figure of 48.5, but still under the 50.0 mark which suggests the commercial side of the economy contracted slightly. There was once again a contrast between services industries and manufacturing. The services PMI rose from 49.0 in April to 50.2 in May. However, manufacturing declined from 45.4 in April to 45.1 in May. This trend of services outperforming manufacturing has been playing out in many advanced economies, with the new US tariffs having added to the sector’s woes.
Re-enforcing the message of the resilience of services, the April UK retail sales figures were strong, with sales up 1.2% month-on-month and well ahead of a consensus forecast of 0.2%. In part, Easter falling in April boosted sales, but the ONS also cited good weather as a factor. The figures were encouraging given retail analysts had been nervous about April. Separately, data from GfK showed UK consumer confidence improved in May to -20, up from -23 in April.
UK inflation increased from 2.6% in March to 3.5% in April, exceeding the consensus forecast of 3.3%. There were several one-off factors driving the increase. The Bank of England is forecasting inflation to slow again later in the year, so we do not see the increase deterring further cuts to the Base Rate – we are forecasting two more 25 bps reductions in 2025. Friday saw Ofgem announce its price cap on energy bills will fall by -7% in July, which should exert downwards pressure on CPI inflation.
This week sees data released on sentiment in the Eurozone at a time of significant uncertainty. This index declined sharply in March and April due to the new US tariffs. Given the confrontational backdrop on trade with the US, and the general sluggishness of the economy, we are predicting a further slide for Euro Area sentiment in May. Last week, President Trump commented that he is considering a 50% tariff on imports to the US from the EU.
This Friday sees the release of the US PCE inflation index for April – the measure of price rises the Federal Reserve benchmarks against. It is probably too early to expect much of an impact from the new tariffs, so we are forecasting inflation remained steady. However, further down the line we are predicting US inflation will rise as a result of the new duties.
Investment Focus – Industrial Property
Industrial big-box investment volumes year-to-date totalled £511 million, up 22% on last month. Although volumes remain subdued, the sector is emerging from the recent downturn and we view the industrial property investment market to be in the early stages of a new cycle. Industrial values, based on the MSCI capital growth index, are currently 23.1% below their June 2022 peak, but further uplift is predicted in the months ahead. Based on the MSCI capital growth index, values for industrial property up to April 2025 have risen for thirteen consecutive months. In the near-term, due to high uncertainty on the economic outlook, we believe property investors will view industrial as a safe play for deploying capital, although that will probably mean a more competitive bidding field.
This week's figures
TUESDAY 27 May
Euro Area Economic Sentiment, May
93.6 previous
93.3 forecast
Given heightened geopolitical risks and the ongoing dispute over US tariffs, we are forecasting another decline for sentiment in the Euro Area, which could continue in June.
FRIDAY 30 May
US PCE Inflation, y-on-y, April
2.3% previous
2.3% forecast
Although this is the figure for April, the month of the tariff hikes, we think it will be too soon for the higher duties to have had a significant impact on inflation. We are forecasting no change.
