UK Macroeconomic Snapshot - A mixed outlook remains

The UK economy is navigating through a period of mixed signals, with recent data offering reasons for both optimism and caution. In August, real GDP saw a slight increase of 0.2%, following stagnation in June and July. This growth was largely supported by a 0.1% expansion in the services sector, alongside rebounds in production and construction, which saw increases of 0.5% and 0.4%, respectively.

 

However, concerns continue around whether the recovery in these sectors will persist. Forward-looking indicators, such as the PMI, show signs of weakening momentum, with the index falling to 52.9 in September from 53.8 in August, though it remains above the 50.0 threshold, indicating continued but slower expansion. 

 

Inflation fell below the BoE’s 2% target for the first time in over three years, easing to 1.7% in September from 2.2% in August — the lowest level since April 2021. Services inflation declined to 4.9%, falling below 5% for the first time since May 2022 and below the BoE’s forecast of 5.5%, though pressures remain in certain sectors. 

 

Consumer confidence saw a sharp drop in September, falling seven points to -20, returning to levels seen earlier this year. This dip underscores growing nervousness about the economic outlook, with anticipated tough decisions on tax, spending, and welfare pending. Meanwhile, labour market data presents a mixed picture, with unemployment improving slightly to 4.0% from June to August 2024, down from 4.1%. However, wage growth (including bonuses) slowed to 3.8% from 4.0%, raising concerns about household spending power. 

 

On a positive note, the housing market showed signs of resilience. Net mortgage approvals for house purchases surged to 64,900 in August, the highest since August 2022, while approvals for remortgaging also increased (BoE’s Money and Credit report). 

 

Overall, the outlook remains mixed. The strength in the housing market and stability in the labour sector provide encouraging signs of underlying resilience. However, the decline in consumer confidence and signs of slowing economic momentum highlight the need for careful monitoring and focused efforts to ensure sustainable growth and restore confidence in the coming months.