Eco Pulse

United Kingdom: Deterioration in growth prospects

10/06/2025
PDF
Business climate: PMI

Deterioration from a good level. The composite PMI has been in expansionary territory for five months. However, it fell to 50.1 in September (-3.4 pts m/m), dragged down by the services PMI (50.8; -3.4 pts m/m), which had reached an 18-month high in August. The manufacturing PMI was weakened in September by the ‘production’ (-3.6 points to 45.7) and ‘new export orders’ ?(-0.9 points to 40.9) sub-components. The July decline in industrial production (-5% 3m/3m, +0.1% y/y) suggests a backlash after a surge in growth linked to expectations of US tariff increases.

Consumer confidence

Modest increase in consumption. Retail sales rose slightly in August (+0.5% m/m; +0.7% y/y), at the same pace as in July. The BRC (British Retail Consortium) confidence index climbed to 2.9% y/y in August. The GFK household confidence index stood at -19. This is down two points from July and below its long-term average.

Labour market: payrolls

First signs of stabilisation? Unemployment stabilised at 4.7% in June (three-month average) for the third consecutive month. Payroll losses slowed over the last two months (-6,557 in July-August compared with -22,192 in May-June) but remain significant over one year (-126,953 over one year in August, the sharpest annual decline since the Covid pandemic). The number of job vacancies rose slightly (+8,000 m/m) for the first time since April 2022. Regular pay growth continues to outpace inflation (+4.6% y/y), while purchasing power gains are at their slowest pace since 2023 (+0.9% y/y).

Inflation (y/y) and bank rate

Persistent inflationary pressures. Headline inflation remained stable at 3.8% y/y in August, with moderation in services (+4.7% y/y vs. 5% y/y) offsetting inflation in goods prices which reached their highest level since 2023 (+2.8% y/y vs. 2.6%). Core inflation (excluding energy, food, alcohol & tobacco) slowed slightly to 3.6% y/y. Household inflation expectations for the coming year are stable (+4%, Citi-YouGov).

UK's GDP growth q/q: actual, carry-over and forecasts

The pullback would continue in Q3 before a rebound in Q4. After a strong Q1 (+0.7% q/q), a slowdown in growth was observed in Q2 (+0.3% q/q) and is likely to persist in Q3. At the end of this downturn, Q4 would see a rebound, helped by the ongoing monetary easing. A solid first half of the year and the accumulated favorable growth will enable 2025’s growth to bounce back to an average of 1.3% on an annual basis.

Completed on October 3, 2025.

THE ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE

Other articles from the same publication

Global
EcoPulse | Resilient growth despite volatility linked to the tariff shock

EcoPulse | Resilient growth despite volatility linked to the tariff shock

Our nowcasts for Q3 2025 highlight resilient GDP growth in the Eurozone and France. In Italy and Germany, two economies that suffered a setback in Q2 after a very good Q1, we expect growth to strengthen in Q3 and more markedly in Q4 [...]

Read the article
Eurozone
Eurozone: Strengthening activity still in sight

Eurozone: Strengthening activity still in sight

The recovery in PMI indices continues despite a decline in industry. In September 2025, the composite PMI reached its highest level since May 2024 (51.2), an improvement attributable to services (51.4) [...]

Read the article
Eurozone
Eurozone : Overall uptick in lending volumes

Eurozone : Overall uptick in lending volumes

Rates on new investment loans (irf>5 years) to non-financial corporations in the Eurozone fell very slightly in July 2025 for the second consecutive month. At 3.58%, however, they remained close to their June 2025 level [...]

Read the article
Germany
Germany: A two-stage recovery – moderate in Q3, stronger in Q4

Germany: A two-stage recovery – moderate in Q3, stronger in Q4

The decline in the IFO index in September does not impede the upward trend that began in early 2025. The relative weakness in September particularly affected services and retail trade [...]

Read the article
France
France: Towards a new quarter with 0.3% growth?

France: Towards a new quarter with 0.3% growth?

In France, the improvement in certain sectors is not spreading to others. The composite business climate has been stable for five months, at 96 [...]

Read the article
Italy
Italy: Economic conditions improving

Italy: Economic conditions improving

In September, the economic sentiment index remained below its long-term average, held back by industry with a production index still in negative territory (-17.4) and production forecasts declining (-0.9) [...]

Read the article
Spain
Spain: Growth expected to be stronger than anticipated in 2025

Spain: Growth expected to be stronger than anticipated in 2025

In Spain, business confidence strengthened in September and remains well above its long-term average. In industry, the index remains in contraction territory but is improving (-4.7; +1.1 pts m/m) [...]

Read the article
United States
United States: Strong Q3 growth before a backlash

United States: Strong Q3 growth before a backlash

The non-manufacturing ISM fell markedly in September to 50.0. This result was due to a decline in business activity and new orders components. Manufacturing ISM improved to 49.1 in September, driven by output growth (51.0) [...]

Read the article
Japan
Japan: Flat growth in Q3, no worries going forward

Japan: Flat growth in Q3, no worries going forward

The Tankan survey reported an improvement in large Japonese manufacturing companies' sentiment (14) in Q3, including in the motor vehicles sector (10). The overall figure (all enterprises and all industries) remained stable (10) [...]

Read the article
China
China: Gloomy mood during the summer

China: Gloomy mood during the summer

In the Chinese manufacturing sector, the official PMI has remained in contraction territory since April, but it improved to 49.8 in September. The PMI published by RatingDog (formerly Caixin) also improved (to 51.2 from 50.5 in August and 49 [...]

Read the article