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UK Macroeconomic Snapshot - a complex landscape
1 minute read time
The UK economy continues to navigate a complex landscape. Economic growth in 2024 has exceeded expectations so far, with GDP expanding by 0.4% in May after flat growth in April, suggesting continued growth in Q2. While inflation has improved significantly, it has risen slightly to 2.2% in July from 2.0% in June. However, the unexpected decline in services inflation from 5.7% to 5.2% offers some respite. This is a positive development, although the volatility of this component means that inflationary pressures cannot be fully discounted.
Consumer confidence has improved for four consecutive months, reaching -13 in July compared to -24 in March. Real wage growth of 2.2% has offered some relief to households, but this relief is tempered by a rising unemployment rate, which currently stands at 4.4%. The housing market presents a contrasting view; increased mortgage commitments indicate renewed activity, which corresponds with data in our portfolio that shows an increase in new originations. Meanwhile, mortgage arrears data highlights the continued financial strain on certain segments of homeowners.
In a notable move, the Bank of England lowered interest rates by 25 basis points to 5%, marking the first cut since the pandemic. While this cut aims to stimulate growth and support the housing market by reducing borrowing costs, the bank has cautioned against expecting a sustained decline in borrowing costs.
Overall, the UK economy is in a transitional phase, showing encouraging signs of progress with declining inflation and improving consumer confidence. However, persistent challenges such as rising unemployment and mixed signals across sectors warrant a cautious outlook.
