{"id":2482,"date":"2025-09-08T06:00:30","date_gmt":"2025-09-08T06:00:30","guid":{"rendered":"https:\/\/www.rnm.in\/blog\/?p=2482"},"modified":"2025-10-15T10:02:12","modified_gmt":"2025-10-15T10:02:12","slug":"resilience-and-risk-the-uks-economic-outlook-for-autumn","status":"publish","type":"post","link":"https:\/\/www.rnm.in\/blog\/resilience-and-risk-the-uks-economic-outlook-for-autumn\/","title":{"rendered":"Resilience and Risk: The UK\u2019s Economic Outlook for Autumn 2025"},"content":{"rendered":"

The UK economy grew modestly in the second quarter, performing better than many forecasters had expected. While government spending and construction provided support, household consumption remained weak and business investment fell back. Inflation is still above target, shaping cautious interest rate decisions, and consumer behaviour remains restrained. However, the mortgage market is showing signs of revival, with lending activity improving and arrears easing. The outlook is balanced: short-term resilience offset by persistent risks from global trade tensions and domestic cost pressures.<\/span><\/p>\n

Economic Growth in Q2<\/b><\/p>\n

The UK economy expanded by 0.3 per cent in the second quarter of 2025, a slowdown from the 0.7 per cent growth recorded in the opening months of the year but still stronger than anticipated. After two months of weak output, activity rebounded in June, supported by robust construction growth and modest gains in manufacturing. The services sector, which makes up the bulk of economic activity, also contributed positively, though its pace of expansion has eased.<\/span><\/p>\n

Government spending was an important driver, particularly in health and defence, while household spending provided only limited momentum. Net trade was broadly flat following an export surge earlier in the year, and business investment contracted after a brief pick-up in the spring. These patterns reflect broader global dynamics, with many economies experiencing similar slowdowns after frontloading activity ahead of US tariff changes.<\/span><\/p>\n

Looking ahead, trade policy uncertainty continues to dampen investment and exports, while businesses are also facing higher tax and cost burdens. Some relief may come from increased public spending and a slight improvement in consumer sentiment, which could support growth in the third quarter. Forecasters expect output to expand by around 0.5 per cent in Q3.<\/span><\/p>\n

Consumer Spending Trends<\/b><\/p>\n

Household consumption remains a weak spot in the recovery. Expenditure increased by just 0.1 per cent in Q2, reflecting subdued retail sales. Card payment data shows that while the overall value of spending was little changed from last year, the number of transactions rose by around three per cent. This suggests households are making more frequent but smaller purchases, often in response to elevated prices for essentials such as food and drink.<\/span><\/p>\n

The pattern highlights ongoing caution among consumers, many of whom have chosen to rebuild savings rather than increase discretionary spending. Although sentiment surveys show some improvement, the willingness to spend more freely has yet to translate into a sustained rise in demand.<\/span><\/p>\n

Inflation and Interest Rates<\/b><\/p>\n

Monetary policy remains finely balanced. In August, the Bank of England cut Bank Rate to 4 per cent, marking the fifth reduction in a year. The decision split policymakers, with differing views on the risks of cutting too quickly versus holding firm to ensure inflation falls sustainably.<\/span><\/p>\n

Recent forecasts suggest inflation will remain at 3.8 per cent through the third quarter, driven by higher costs for energy, food, services, and transport. July\u2019s figures confirmed an uptick in prices, with airfares, hotels, restaurants, and food contributing to the increase. Nonetheless, the longer-term outlook points to inflation gradually returning to the two per cent target by mid-2027, though considerable uncertainty remains.<\/span><\/p>\n

Markets are cautious about expecting further rate cuts this year, given the diversity of opinion within the Monetary Policy Committee. Borrowers may need to wait until 2026 before seeing another reduction.<\/span><\/p>\n

Mortgage Market Developments<\/b><\/p>\n

The housing finance market is showing encouraging signs of recovery after a difficult 2024. Residential mortgage lending is projected to grow by around ten per cent in 2025, supported by improving affordability and lower interest rates. The early part of the year was boosted by a rush of buyers seeking to complete purchases before Stamp Duty changes, but demand has held up since then.<\/span><\/p>\n

By contrast, the buy-to-let sector continues to face headwinds from tax and regulatory changes, with lending expected to contract this year. Refinancing activity is stronger, however, with both internal product transfers and external remortgaging expected to grow as borrowers move off fixed-rate deals. Overall, gross mortgage lending is forecast to increase by more than ten per cent, while arrears are on track to fall as financial pressures ease and lenders provide ongoing support.<\/span><\/p>\n

Conclusion<\/b><\/p>\n

The UK economy is navigating a delicate balance between resilience and fragility. Growth has slowed but not stalled, thanks to government spending and stronger construction activity, while consumer demand and business investment remain subdued. Inflation is still above target, limiting the scope for rapid interest rate cuts, and global trade tensions continue to cloud the outlook. Yet there are encouraging signs: consumer confidence is edging higher, mortgage lending is reviving, and arrears are declining. The coming months will be shaped by how well these tentative positives hold up against persistent global and domestic risks.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

The UK economy grew modestly in the second quarter, performing better than many forecasters had expected. While government spending and construction provided support, household consumption remained weak and business investment fell back. Inflation is still above target, shaping cautious interest rate decisions, and consumer behaviour remains restrained. 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