UK GDP Preview (Feb 12): Underlying Economy Fragility Continues?
Even given the surprisingly solid November GDP release, this merely returns the level of GDP to where it was in June, albeit briefly as for the latter. Partly undermined by wet and warm weather through the month, we see no change on the December figure, in m/m terms (Figure 1), thus no reversal of the 0.3% November that following an unrevised fall of 0.1% in October 2025 and a growth of 0.1% in September 2025 (revised up from our initial estimate of a fall of 0.1%). This means that Q4 is set for a 0.2% q/q rise which would result in 2025 growth of 1.4%. But we see no more than 0.8% this year; this actually and merely being an extension of the anticipated Q4 result. Regardless, we remain wary about the GDP numbers. Although there have been some better business survey numbers, other such insights provide still sobering reading (Figure 2) as do non-official employment indicators, the latter actually suggesting a worsening backdrop of late.
Figure 1: GDP Growth Volatile but Hardly Strong?
Source: ONS, CE
It is unclear how uncertainty (especially related to budget worries) affected activity in October and whether a degree of more fiscal clarity even ahead of the actual Budget may have helped sentiment in November. But businesses across the production, construction and services sectors reported that they, or their customers, were waiting for the outcome of the Autumn Budget 2025 announcement on 26 November 2025. These comments came from a range of industries, but were mainly from manufacturers, construction companies, wholesalers, computer programmers, real estate firms, and employment agencies.
Figure 2: Surveys Offering Diverging Signals?
Source: ONS, CE, CBI, Markit
Regardless, for some time, we have discerned very feeble momentum, which may actually be nearer zero, especially once ever-clearer construction weakness is incorporated. Indeed, GDP has hardly moved since March and is just a notch above the most recent peak in activity set in June. Admittedly, solid GDP outcomes early in the year suggest that UK GDP growth in 2025 will be around 1.4% - the highest in the G7 according to the IMF but this masks what is very much a weak(er) picture in per capita terms, this being a politically important issue amid current immigration issues. Indeed, the IMF see a cumulative per capita growth of 0.9% for 2025 and 2026, the weakest in the DM world save for a similar soggy outlook for Germany. Regardless, the 0.8% GDP projection we have penciled in for this year actually constitutes some modest pick-up in activity momentum and thus may actually be too optimistic, something that surveys would suggest given their weakness. In fact, GDP growth this year may now be as soft as 0.6%, especially if the recent support from government spending ebbs, let alone reverses. This supports our view that the BoE will cut rates down to 3.0% by end 2026!