Disappointing UK economic data points to softer measures
- Mr. Adelino Izidro
- May 22
- 4 min read
For the past 3 quarters, the UK´s economic data has shown signs of deterioration. With the worlds economy and markets also in an uncertain environment, the UK Policy makers will have a hard time going forward.
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UK slowing economic wheel
The UK´s GDP has increased 0.7% for Q1 of 2025 which is an increase from 0.1% from Q4 2024.
UK´s unemployment has been rising since August 2024 from 4% and now stands at 4.5% for March 2025. It is crucial to note that it stayed at 4.4% for four consecutive periods since November 2024. Meanwhile, the number of employed individuals rose by 112 thousand, marking the smallest increase since the three months ending December 2024, to reach 33.98 million, mainly driven by a decline in full-time employment. In addition, the number of people holding second jobs increased, now representing 3.9% of all employed individuals. Lastly, the economic inactivity rate decreased by 0.2 percentage points to 21.4%. This suggests that the economy did increase, but at the expense of more individuals losing jobs. For those that still have a job, 3.9% are now doubly employed.
The annual inflation rate in the UK jumped to 3.5% in April 2025, the highest since January 2024, from 2.6% in March and above forecasts of 3.3%. The largest upward contribution came from prices for housing and utilities (7.8% vs 1.8%), mostly electricity (4.6% vs -8.8%) and gas (12.2% vs -12%), reflecting the rise in the Ofgem energy price cap introduced in April 2025.
Additionally, the S&P Global UK Services PMI increased to 50.2 in May 2025, up from 49 in April and slightly above market expectations of 50. This shows that after a period of contraction in the UK´s service sector, this new figure shows expansion is back. But when having a closer look at business inflows, we can see some are still struggling with high cost such as: wages, higher utility bills, increased shopping costs, and more expensive technology.
Not forgetting that, the S&P Global UK Manufacturing PMI decreased to 45.1 in May 2025 from 45.4 in April, when the market expectation was for an increase towards 46.0. This, unfortunately, signals further deterioration in the manufacturing sector, as output contracted more quickly and new orders continued to decline whilst there is a rising global economic uncertainty. So far, the entire data (CPI, GDP, Employment, Service and Manufacturing PMIs) are showing and pointing towards UK economic contraction.
Which is why, when it comes to Monetary policy, we are now expecting the Bank of England (BOE) to cut interest rate to 4% at their next meeting. Reason being is that the UK desperately needs to boost its economy, and by further reducing the interest rate, the BOE can give a general boost to the economy whilst allowing the UK Government more room to apply the required fiscal policy and trade negotiations to support the economy as whole – especially with the US universal Tariff in place.
The recent UK trade deals with the US and EU are paramount tasks that UK had to do in order to sustainably maintain the economic wheel running. BREXIT already put the UK and the EU bloc in a messy situation, so the recent deal with the EU is a step in the right direction to aid the manufacturing sector sustainably for both parties. As for the deal with the US, the UK already has issues on the East side with the EU bloc, it couldn’t possibly have the same on the West side with US. The country is reaching a crucial point, and the government must be able to navigate these uncertainties in a way that creates sustainable growth for everyday individuals and small business owners.
How is RC navigating this?
As always, whether in good time or bad times, there is always someone or some entity, profiting amidst the event. And inside RC investment department, we have been repositioning ourselves for both a correction or upside moves in the market. Our usual approach of calibrating the portfolio may require a different method for the UK market if economic conditions continue to deteriorate.
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