Key predictions
1.5%
UK GDP growth
3.75%
UK Bank rate by end of 2025
c.2%
UK inflation by end of 2025
1.28
GBP/USD by end of 2025
1.25
GBP/EUR by end of 2025
UK GDP growth downgraded, but only slightly
- We have downgraded our UK growth forecast, but only slightly, to 1.5% in 2025.
- The October Budget loosened fiscal policy as the government increased spending.
- Employers have warned of lower job creation due to National Insurance Contributions and minimum wage increases.
- Personal finances are still strong, in Q2 2024 there was 3.5% growth in average disposable income year-on-year. The household saving ratio of 10% stood at more than double pre-Covid levels.
UK GDP growth downgraded, but only slightly
- We have downgraded our UK growth forecast, but only slightly, to 1.5% in 2025.
- The October Budget loosened fiscal policy as the government increased spending.
- Employers have warned of lower job creation due to National Insurance Contributions and minimum wage increases.
- Personal finances are still strong, in Q2 2024 there was 3.5% growth in average disposable income year-on-year. The household saving ratio of 10% stood at more than double pre-Covid levels.
UK inflation could rise next year, but should subside quite quickly
- UK inflation could creep up to 3%, principally due to rising gas prices.
- Inflation should fall back close to 2% in Q4 as service sector inflation should continue easing.
UK inflation could rise next year, but should subside quite quickly
- UK inflation could creep up to 3%, principally due to rising gas prices.
- Inflation should fall back close to 2% in Q4 as service sector inflation should continue easing.
UK interest rates should fall, along with mortgage rates
- The Monetary Policy Committee looks set to continue to reduce interest rates gradually.
- We still expect 100 basis points of rate cuts over 2025, taking the Bank of England Bank rate to 3.75% by the end of the year.
- This is a lower profile for rates than markets are pricing in, which should allow mortgage rates to come down.
UK interest rates should fall, along with mortgage rates
- The Monetary Policy Committee looks set to continue to reduce interest rates gradually.
- We still expect 100 basis points of rate cuts over 2025, taking the Bank of England Bank rate to 3.75% by the end of the year.
- This is a lower profile for rates than markets are pricing in, which should allow mortgage rates to come down.
We expect a firmer US dollar, but a weaker euro
- We have lowered our forecast for sterling against the dollar as we expect the US Federal Reserve to cut US interest rates just once in 2025.
- Sterling could move higher against the euro as a weaker Eurozone GDP could see the European Central Bank cut rates to 1.5% by the end of the year.
- We still see upside possibilities for sterling, providing government policies to boost longer-term growth bear fruit.
We expect a firmer US dollar, but a weaker euro
- We have lowered our forecast for sterling against the dollar as we expect the US Federal Reserve to cut US interest rates just once in 2025.
- Sterling could move higher against the euro as a weaker Eurozone GDP could see the European Central Bank cut rates to 1.5% by the end of the year.
- We still see upside possibilities for sterling, providing government policies to boost longer-term growth bear fruit.
The impact of US tariffs on UK businesses might be limited
- While there is some uncertainty, President-elect Donald Trump could introduce tariffs of 10% on goods imported into the US.
- Goods account for 45% of total UK exports and 15% of UK GDP.
- 15% of goods exported go to the US.
- Retaliatory measures to tariffs are likely to be symbolic, to avoid boosting domestic inflation.
The impact of US tariffs on UK businesses might be limited
- While there is some uncertainty, President-elect Donald Trump could introduce tariffs of 10% on goods imported into the US.
- Goods account for 45% of total UK exports and 15% of UK GDP.
- 15% of goods exported go to the US.
- Retaliatory measures to tariffs are likely to be symbolic, to avoid boosting domestic inflation.
Important information:
This article is for general information purposes only. The opinions featured do not constitute financial or other advice. It is advisable to contact a professional adviser if you need financial advice. Your use of and reliance on any of this content is entirely at your own risk.
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