UK GDP grew by 0.3% in Q2 2025, down from 0.7% in Q1, as government spending supported growth, despite rising inflation and weak consumer confidence. Growth is expected to remain subdued in the second half of the year, resulting in a 1.3% expansion for 2025. Over the medium term, growth will remain modest, reflecting weak productivity, demographic pressures, and elevated borrowing costs.
UK CPI inflation stood at 3.8% in August, its joint-highest reading since January 2024. Inflationary pressures are broad-based across consumption categories. Faced with elevated inflation but weak growth, the Bank of England will likely maintain a cautious approach to monetary loosening, with only one further interest rate cut expected this year.
The North East and North West are set to lead UK regional growth in 2025, followed by the West Midlands, London, and the East Midlands. In contrast, the devolved nations, particularly Wales, are set to grow at slower pace. Business sentiment remains negative across the UK, reflecting ongoing macroeconomic headwinds.
The European Central Bank kept rates on hold in early September, as it approaches the end of its cutting cycle. Dynamics in the US show stronger-than-expected growth, but a weakening labour market.
Bond yields have risen across the developed world. Interest payments on debt are taking up a greater share of government spending, placing other budgets under pressure. Concerns around future issuance of debt and inflation are likely to keep yields elevated for the foreseeable future.
• UK growth prospects
• The labour market
• Inflation and interest rates
• Global growth prospects
• Regional prospects
• Topical economic issues