Mar
2025
UK GDP shrinks as growth concerns persist amid inflation and fiscal tightening
DIY Investor
14 March 2025
Lale Akoner, Global Market Analyst at eToro, says: “The UK economy faces renewed headwinds, as January GDP unexpectedly contracted by 0.1%, driven by weakness in manufacturing, while the services sector showed resilience. The three-month growth rate held at 0.2%, but 2025 forecasts have been revised down to 0.9%, reflecting persistent cost pressures and global trade uncertainty.
“Inflation remains a key risk, with the Bank of England projecting it to rise to 3.7% by Q3 –nearly double its 2% target. In response to slowing growth, the BoE cut rates to 4.5%, but further easing will depend on inflation data. This delicate balancing act highlights the policy challenges ahead.
“On the fiscal side, Chancellor Rachel Reeves’ Spring Statement on March 26 will be closely watched. With borrowing costs rising, the government is expected to prioritise spending cuts while considering targeted tax adjustments, including potential changes to inheritance tax and ISAs.
“Externally, global trade tensions threaten the UK’s already sluggish export sector, adding another layer of uncertainty. While modest growth is still projected, the UK is expected to lag behind faster-recovering economies like the US.”
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