UK Economic Outlook 2025: Optimism Meets Challenges

The UK’s economic outlook for 2025 reflects a mix of optimism and challenges, as highlighted by various forecasts and reports. The OECD has revised its growth projection upward to 1.7%, citing stabilizing inflation, improved labor market conditions, and stronger household disposable incomes. This optimism is underpinned by easing inflationary pressures, with core inflation expected to moderate to 2.8% in 2025 and 2.3% in 2026. Strong domestic demand and public expenditure policies are anticipated to support recovery despite global uncertainties.

However, Deutsche Bank offers a more cautious view, lowering its 2025 GDP growth estimate to 1.3%, citing weaker private demand, higher payroll costs, and a softening labor market. Unemployment is forecast to rise to 4.6% by late spring, while wage growth is expected to slow, further dampening consumption and employment. Fiscal constraints are expected to limit government spending, while monetary policy easing by the Bank of England may progress more slowly.

Trade prospects face headwinds from potential U.S. tariffs under President-elect Donald Trump and ongoing Brexit-related barriers. The interconnected nature of global trade exposes the UK to indirect economic pressures, particularly through its largest trading partner, the EU. UBS and the British Chambers of Commerce (BCC) caution about the risks of a slowdown in global trade and its potential impact on UK exports. The BCC projects modest growth of 1.3% in 2025, supported by public spending increases, though businesses are concerned about rising costs and wage pressures.

Confidence among UK businesses has dipped amid concerns over higher employer costs, slower investment, and subdued wage growth. Finance Minister Rachel Reeves’ budget, which includes significant tax increases and social security contribution hikes, has drawn criticism for its impact on business plans. The Confederation of British Industry (CBI) and Institute of Directors (IoD) report declining optimism among businesses, with investment and hiring intentions at their lowest since the COVID-19 pandemic.

British economic data reflects widespread challenges across sectors, highlighting manufacturing contraction, subdued services growth, and shifting consumer behavior amid rising costs and policy changes. Manufacturing activity contracted sharply in November due to declining domestic and foreign orders, supply chain disruptions, and escalating costs. Services growth also slowed, as businesses grappled with rising wage costs, reduced hiring, and muted investment optimism following new budget measures.

Retail sales declined, underscoring weak consumer confidence amid higher energy bills and interest rates. While food sales rose modestly, non-food spending fell. Consumer spending on essential items saw its sharpest drop in five years, driven by reduced supermarket expenditures.

The housing market showed resilience despite high borrowing costs, with November house prices rising at their fastest annual pace in two years. Mortgage approvals reached their highest level since August 2022, signaling recovering demand after a period of subdued lending due to elevated interest rates.

Labor market pressures intensified, with permanent staff placements declining and a record drop in demand for workers following budgetary tax hikes. The ONS faces delays in improving labor market surveys, hindering the BoE's ability to assess employment trends.

Despite the varied forecasts, the UK economy is expected to benefit from improved public spending and resilience in key sectors. However, significant risks remain, including global trade uncertainties, geopolitical tensions, and structural challenges in the labor market. Policies targeting workforce upskilling, greater labor participation, and fostering private sector growth will be critical to sustaining recovery and achieving long-term economic resilience.

The U.S. dollar strengthened on Friday, reversing earlier losses after a jobs report showed higher unemployment and modest job gains overall. The market initially reacted to an increase in the unemployment rate to 4.2% from 4.1%. However, nonfarm payrolls rebounded, adding 227,000 jobs, exceeding expectations of 200,000, as the labor market recovered from earlier disruptions caused by hurricanes and labor strikes. Despite this growth, the six-month average monthly job gain of under 150,000 remains insufficient to meet the needs of a growing population.

This mixed labor data solidified expectations for a Federal Reserve interest rate cut at the December 17-18 meeting, with traders pricing an 85% chance of a quarter-point reduction, bringing the policy rate to the 4.25%-4.50% range. Fed officials signaled readiness for further cuts, though some emphasized caution amid persistent inflation and a robust labor market.

The U.S. will release November's consumer price inflation data on Wednesday, providing the Federal Reserve with key insights before its final policy meeting of the year next week. Concerns about rising inflation have resurfaced due to President-elect Donald Trump's plans to increase tariffs on imports, which are expected to drive inflation higher.

Data for Technical Analysis (30Min) CFD GBP/USD

Resistance : 1.2741, 1.2742, 1.2745

Support : 1.2737, 1.2736, 1.2733

30Min Outlook

Source: TradingView 

Buy/Long 1 If the support at the price range 1.2732 - 1.2737 is touched, but the support at 1.2737 cannot be broken, the TP may be set around 1.2742 and the SL around 1.2730, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2741 - 1.2746, TP may be set around 1.2752 and SL around 1.2735, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2741 - 1.2746 is touched, but the resistance ต้าน 1.2741 cannot be broken, the TP may be set around 1.2736 and the SL around 1.2748, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2732 - 1.2737, TP may be set around 1.2726 and SL around 1.2743, or up to the risk appetite.       

Pivot Points Dec 9, 2024 03:02AM GMT