UK Consumer Spending to Recover Modestly in 2025 Amid Economic Uncertainty

UK consumer spending is set for a modest 2025 recovery, driven by a 1.4% rise in real income and easing monetary constraints, per Bank of America (BofA). Consumption is expected to grow 1.0%, though rising savings rates limit spending as households prioritize debt reduction. BofA estimates a 1% drop in the savings rate could boost consumption growth to 1.7%, but inflation and unemployment risks may sustain high savings levels.

Retail trends remain mixed. Barclays data shows a 1.6% year-over-year spending increase in early February, led by older consumers and online purchases, but forecasts a sharp slowdown to 0.3% in early March. Discretionary spending is expected to outperform necessities, with travel and digital content remaining strong while clothing and DIY sectors struggle.

The services sector struggles with declining profitability and weak confidence, especially in consumer-facing businesses. A CBI survey reports the steepest profit drop in business services since 2020, with consumer service morale at a two-year low. Rising employment costs, including tax hikes and an April minimum wage increase, add to concerns, with employers anticipating further staff cuts.

Business confidence is mixed. A Lloyds Bank survey shows optimism at its highest since mid-2024, despite concerns over taxes and wages. Two-thirds of firms plan price hikes, sustaining inflation and complicating BoE policy.

The UK job market faces headwinds, with January job postings at a four-year low (-4.5% YoY), per Adzuna. Despite fewer vacancies, advertised salaries rose 7%, reflecting competition for skilled labor. The Bank of England (BoE) expects labor market cooling to ease inflation pressures and support further rate cuts.

Manufacturing remains under pressure despite stabilization signs. A CBI survey suggests slight output growth, but demand is weak due to tax hikes, high energy costs, and sluggish exports. Industrial output fell 1.7% in 2024, marking five months of decline. Productivity improved slightly in late 2024, with a 0.7% rise in output per hour worked in Q4, rebounding from a prior drop.

The housing market is rebounding, with house prices rising 4.6% YoY in December, driven by lower borrowing costs and pre-tax-change purchases. Rents surged, particularly in London (+11% YoY).

The BoE is expected to proceed cautiously with rate cuts amid economic uncertainty. Deputy Governor Dave Ramsden emphasized a measured approach, balancing inflation risks with the need to support a sluggish economy.

The dollar held steady Friday as inflation data reinforced the Federal Reserve’s cautious stance on rate cuts. The Personal Consumption Expenditures (PCE) Price Index rose 0.3% in January, matching December’s increase. Core PCE inflation fell to 2.6% from 2.9%, while consumer spending declined 0.2%, reversing December’s 0.8% gain.

GDP growth slowed to 2.3% in Q4, down from 3.1% in Q3, as government spending and exports offset weaker consumer and business investment. Cold weather and tariff concerns further weighed on activity. Jobless claims saw their sharpest rise in five months, though largely due to seasonal factors. The housing market is expected to see slight affordability improvements as mortgage rates fall, though home prices remain high.

The trade deficit widened in January as businesses ramped up imports ahead of impending tariffs. The goods trade gap surged 25.6% to $153.3 billion, with imports up 12% to $325.4 billion. Trump confirmed delayed tariffs on Mexican, Canadian, and Chinese goods will take effect in early March, raising price concerns. The Atlanta Fed now forecasts a 1.5% annualized Q1 contraction, revising earlier growth estimates downward.

Cleveland Fed President Beth Hammack signaled the Fed will likely continue balance sheet reduction amid fiscal uncertainty. The Fed has shrunk its $9 trillion balance sheet since 2022, with expectations it may pause by mid-year. Hammack suggested the process could extend, with temporary bond repurchases managing liquidity if needed.

U.S. economic data remains mixed. While inflation is moderating, weaker consumer spending signals a slowdown. Traders still expect Fed rate cuts in June and September, but uncertainty is rising. Analysts warn of stagflation—slow growth with persistent inflation.

As a result, GBP/USD is likely to experience mixed trading in the coming months, with moderate upside potential driven by improving UK consumer spending but weighed down by persistent economic uncertainty. If UK retail and labor data improve while U.S. growth slows, GBP/USD could see upward momentum. However, a stronger dollar, fueled by persistent U.S. inflation and delayed Fed easing, may cap gains.

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

Resistance : 1.2606, 1.2608, 1.2612

Support : 1.2598, 1.2596, 1.2592

30Min Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 1.2592 - 1.2598 is touched, but the support at 1.2598 cannot be broken, the TP may be set around 1.2607 and the SL around 1.2589, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2606 - 1.2612, TP may be set around 1.2617 and SL around 1.2595, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2606 - 1.2612 is touched, but the resistance at 1.2606 cannot be broken, the TP may be set around 1.2597 and the SL around 1.2615, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2592 - 1.2598, TP may be set around 1.2585 and SL around 1.2609, or up to the risk appetite.       

Pivot Points Mar 3, 2025 03:48AM GMT