The week ahead 10 February 2025 - Bank of England acts to support economy
What to watch out for in the UK economy and property market this week.
The FTSE 100 hit an historic high last Thursday as the Bank of England signalled its determination to prevent a recession by cutting the Base Rate by 25 bps to 4.5%. The Bank’s own GDP forecast for 2025 was cut sharply from 1.5% three months ago to 0.75%. Add on the fact that two rate setters voted for a larger 50 bps cut, and it becomes apparent that concern is growing in Threadneedle Street on the health of the economy, which persuades us to forecast at least another 75 bps of cuts to the Base Rate this year, and perhaps 100 bps. Our full analysis of the Bank of England’s interest rate decision can be found here.
Across the Atlantic, President Trump rolled out his first round of tariffs, which focussed on Canada, China and Mexico. One-month suspensions were quickly announced for Canada and Mexico following diplomacy. This is why we advise taking a wait-and-see approach to the tariffs, as it is possible that negotiations may reduce their scope. When asked to comment whether extra tariffs would be applied to UK goods, President Trump said that on trade Britain was “out of line” but the issues “can be worked out”. Separately, the Canadian High Commissioner to the UK said in a media interview that Ottawa was interested in restarting talks on a possible trade deal with Britain.
The UK film production industry saw a rebound last year as it benefitted from the end of the US screen writers’ strike and an influx of projects from Hollywood and streaming services. Movie and ‘high-end TV’ production revenue in the UK reached £5.6 billion in 2024 according to BFI, up 56% on 2023, the year of the strikes in Hollywood. Of this, £4.8 billion was inwards investment or foreign co-production, mostly from the US. High-end TV production accounted for £3.4 billion of revenue, demonstrating the growing importance of streaming services within the sector.
This week’s big UK economic news story will be the Q4 GDP numbers, which will probably add to the pressure on the Chancellor to accelerate growth. The data we have so far for Q4 points to a flat to sluggish economy, so there is a good chance the zero growth reported for Q3 has been repeated again in the final quarter. It will be interesting to see if activity holds up better for sectors viewed as critical to long-term growth, such science and hi-tech industries, as this would provide some reassurance on the long-term outlook.
Turning to overseas news, the US publishes inflation figures on the same day the Federal Reserve Chair, Jay Powell, testifies before Congress. The financial markets will be carefully monitoring Powell’s comments for hints on when the Fed will next cut rates, which is currently not expected for several months, despite pressure from the White House to act sooner.
This week’s figures
WEDNESDAY 12 FEBRUARY
US CPI Inflation Rate, January
2.9% previous
2.9% forecast
The latest economic and labour market data for the US has been relatively upbeat, so we believe inflation probably remained steady at the headline level, although core inflation may edge down slightly.
THURSDAY 13 FEBRUARY
UK GDP Growth, q-on-q, Q4 2024
0.0% previous
0.0% forecast
Most of the survey evidence, both for businesses and consumers, points to sluggish economic conditions in the final months of last year. We are forecasting GDP to have flatlined again in Q4.
THURSDAY 13 FEBRUARY
Euro Area Industrial Production, m-on-m, December
0.2% previous
0.2% forecast
Industrial output appears to have been lifted by recent ECB rate cuts, but nevertheless growth has been sluggish. We are expecting a continuation of the recent trend of low growth.
