Q2 2025 UK consumption recovery slows as inflation returns: S&P Global

Weak export growth is set to continue as companies have seen higher input costs and a stronger currency erode their price competitiveness.

The rating agency expects the Bank of England to cut rates to 4 per cent by the end of the third quarter (Q3) this year, one rate cut less than in its last forecast.

Things are looking up for 2026, with regional growth picking up, rates cut by another 50 basis points, and inflation in the United Kingdom edging back to 2.5 per cent, S&P Global Ratings said in a release.

UK gross domestic product (GDP) expanded by 0.9 per cent in 2024, reflecting strong momentum in the first half of the year, but stagnation in the second half. Against this weak economic backdrop, sustained wage growth of close to 6 per cent in December 2024 is puzzling, it observed.

High prices and weak growth suggest that the UK economy has lost some capacity to grow following recent shocks, namely, the COVID-19 pandemic, Brexit and the energy crisis. At the same time, businesses and households across the country are adjusting to changes in public policy.

A loss of cost competitiveness and a challenging global environment have hit UK exporters and manufacturers hard in recent years, and this is set to continue, S&P Global Ratings noted.

Further spikes in inflation as resilience in the labour market fades will delay a full recovery in consumption to next year. This will also make the central bank more cautious about cutting rates too quickly and thus slowing the rebound in investment, it added.

Fibre2Fashion News Desk (DS)