Overview
- The IMF has raised its forecast for global GDP to 3.0% in 2025, up from 2.8% in April, and expects further growth of 3.1% in 2026, bolstered by easing trade tensions, improved financial conditions, and front-loaded corporate activity.
- CPI inflation was 3.8% in August, unchanged from the July figure, which was the highest since January 2024. The Bank of England now forecasts a peak near 4% in September, gradually easing to around 3.6% by the end of 2025 and 2.7% by Q3 2026.
- As expected, the Bank of England’s Monetary Policy Committee did not cut Bank Rate in early September. The Committee remains divided and has signalled that further cuts will be cautious and data-dependent amid persistent inflation risks.
- The UK economy expanded by 0.3% in Q2 2025, slowing from 0.7% in Q1, according to the ONS. The Bank of England’s August Monetary Policy Report projects growth to remain subdued, with underlying four-quarter GDP growth averaging around 1.25% through year-end and only modest improvement expected in 2026. The Treasury’s consensus forecast (September 2025) shows GDP growth of 1.2% in 2025, easing to 1.1% in 2026, while the IMF remains slightly more optimistic with projections of 1.2% for 2025 and 1.4% for 2026.
Recent output trends and indicators
- Monthly GDP is estimated to have shown no growth in July, down from +0.4% in June and in line with expectations. Although there was some growth in services output (0.1%) and construction (0.2%), this was offset by a fall of -0.9% in production output.
- The UK Manufacturing PMI (S&P Global) remained in contraction for the 11th month in a row in August, falling to 47.0 from 48.0 the month before. Subdued client confidence and worries about costs amid rising National Insurance contributions and minimum wages was cited by many as leading to a sharp drop in new orders. This lower demand led to falling employment levels.
- The UK Services PMI meanwhile rose sharply to 54.2 in August, up from 51.8 in July and the strongest reading since April 2024. New business also rose at its fastest pace since September 2024 with strong demand from international and domestic purchasers. Workforce reductions however continued, now in the 11th month of cuts and the longest stretch since the 2008-2010 downturn (outside of the pandemic). Input costs rose sharply in August and output charges also rose.
- The Construction PMI remained in contraction during August, for the eighth month in a row. Registering a figure of 45.5, this was a slight improvement from 44.3 in July but is now the longest continuous period of contraction since early 2020. Steep declines in both residential and civil engineering work were recorded, while commercial construction reduced at a slightly slower rate. Employment numbers reduced at the fastest pace since May, purchasing activity declined at its sharpest rate in three months and projections for the year ahead were the least upbeat in over two years.
Labour market
- The employment rate remained relatively stable this month compared with last, moving to 75.2% (three months to July) from 75.3% the month before. The unemployment rate remained unchanged for the third month in a row at 4.7%.
- Estimates for the number of pay-rolled employees in the UK show a fall of 127,000 over the 12 months to August, including a fall of 8,000 over the last month. This marks the seventh consecutive monthly decline. Disaggregated, Westminster saw the biggest fall in pay-rolled employees, down 2.9%. (These early figures should be treated with caution though and are likely to be slightly revised).
- The total number of job vacancies fell by 10,000 over the three months to August, marking a total of 728,000 recorded vacancies. This is the 38th consecutive period where vacancy figures have fallen. Vacancies were found to have fallen in 9 of the 18 industry sectors.
- Average annual earnings growth (excluding bonuses) declined slightly to 4.8% in the three months to July, down from 5.0% the previous month. Annual earnings growth was 5.6% for the public sector and 4.7% for the private sector.
Inflation
- The Consumer Prices Index (CPI / inflation) rose by 3.8% in the 12 months to August, unchanged from the same rate in July. The price of air fares made the largest downward contribution to inflation on a monthly and annual basis. However, upward contributions from restaurants, hotels and motor fuels offset this.
- Core CPI (CPI excluding energy, food, alcohol and tobacco) rose by 3.6% in the 12 months to August 2025, down from 3.8% in the 12 months to July; the CPI goods annual rate rose slightly from 2.7% to 2.8%, while the CPI services annual rate slowed from 5.0% to 4.7%.
- Inflation is expected to remain elevated through the second half of 2025, with the Treasury’s August consensus forecast projecting CPI at around 3.6% in Q4 2025. The Bank of England, meanwhile, expects inflation to peak at around 4.0% in September before gradually easing back towards the 2% target over the medium term.
Interest rates
- The Bank of England’s Monetary Policy Committee (MPC) voted 7-2 to keep the current Bank Rate unchanged at 4.0% in September’s meeting. Two members voted to cut to 3.75%. Another rate cut late this year remains possible, but may well be delayed until 2026.