April 09, 2025
Our outlook for year-end 2025
Around 0.5%
Economic growth,
year over year
We anticipate that recently announced tariffs and further anticipated announcements will raise the effective tariff rate on U.K. goods from 2% to 7%. We have modestly reduced our GDP growth forecast that had already reflected a deterioration in forward-looking data.
Around 3%
Core inflation, year over year
An expected tariff-related boost in inflation in the short term is likely to give way to slowing economic activity. We’ve increased our year-end 2025 core inflation forecast modestly but foresee core inflation falling to around the 2% target set by the Bank of England (BoE) in 2026.
3.75%
Monetary policy rate
We believe that shorter-term inflation data can be treated largely as “noise” and that inflation will normalize amid still well-anchored inflation expectations and a slowing labor market. As such, we continue to expect the BoE to maintain a quarterly cadence of rate cuts, which would leave the bank rate at 3.75% at year-end. The Monetary Policy Committee left the bank rate unchanged at 4.5%, the BoE announced March 20, having cut it by 25 basis points on February 6.
Around 4.8%
Unemployment rate
Deterioration in hard labor market data is showing signs of slowing. The labor market had lost momentum ahead of an April increase in employers’ national insurance contributions, from 13.8% of wages to 15%. Elevated wage growth was already making it more expensive for companies to hire. The unemployment rate held steady at 4.4% for the November-through-January period. Timely measures suggest an easing in wage growth in the coming months. We foresee the unemployment rate ending the year around 4.8% given recent signs of labor market softening.
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