The week ahead 17 March 2025 - Pressure for a Base Rate cut builds
What to watch out for in the UK economy and property market this week.
The latest GDP figures confirmed that the UK economy is struggling to grow, with a -0.1% month-on-month contraction reported for January. While the key services sector – which accounts for over 80% of UK output – did achieve growth of 0.1%, the industrial sector reported a contraction of -0.9%. In part, this was due to a weak performance by manufacturing (-1.1%), although output fell by -3.3% for mining and quarrying (which is mostly the North Sea oil and gas industry). There was also a decline of -0.2% for the construction sector, which was similar to the fall reported for December.
While one would normally only read so much into one month’s data, this marks the latest in a long run of indicators pointing to a sluggish economy. This heaps pressure on the Bank of England to do more to support growth. The Monetary Policy Committee (MPC) will announce its Base Rate decision on Thursday of this week, although it has to balance the weak GDP growth against stronger-than-expected inflation numbers. The consensus forecast is for no change to the policy rate, but we suspect there may be a hint in the press conference that a cut will follow at the next meeting in May.
This provides a gloomy backdrop for the Chancellor’s Spring Statement on 26th March. The government has been briefing that significant public spending cuts are in the pipeline, and last week set the tone with the announcement of the closing of the NHS England quango, whose responsibilities will be assumed by the Department of Health and Social Care. The re-organisation will lead to job losses. At the time of writing there has been no indication that tax rises are being considered. Clearly the government is moving into austerity mode, and prioritising keeping the financial markets onside with a display of fiscal discipline.
As well as the Bank of England’s Base Rate decision, the US central bank, the Federal Reserve, will also review its policy interest rate this week. In both cases the financial markets are expecting no movement, but economists will be carefully examining what is said at the subsequent press conferences, looking for clues on when the next cuts can be expected. It should be noted that last week saw the Bank of Canada lower its key interest rate by 25 bps to 2.75% - its seventh reduction in the last year.
This Thursday will see the release of labour market statistics for the UK. We expect them to portray a jobs market that is gradually decelerating but remains tight by historic standards. The lesson of recent years is that most firms are reluctant to make redundancies, as the pandemic experience was that skilled workers laid off in the bad times proved difficult and expensive to replace when the economy revived.
This week's figures
WEDNESDAY 19 MARCH
US Fed Funds Rate Decision, March
4.25% - 4.50% previous
4.25% - 4.50% forecast
The most recent US CPI data showed a slowdown for inflation, both headline and core, although concerns are growing that the new tariff regime will stoke inflation further down the line. Our forecast is for no change for the Fed Funds Rate.
THURSDAY 20 MARCH
UK Base Rate Decision, March
4.50% previous
4.50% forecast
The May rate setting meeting will coincide with the Bank of England publishing revised GDP and inflation forecasts, so we see the MPC waiting until then before deciding whether to cut again.
THURSDAY 20 MARCH
UK Unemployment Rate, January
4.4% previous
4.5% forecast
Given the economy has been slowing for several months, we are predicting a small uptick for the unemployment rate, but to a level that is low by historic standards.
