The week ahead 24 March 2025 - Chancellor prepares spending cuts
What to watch out for in the UK economy and property market this week.
Pressure built last week on the Chancellor of the Exchequer to follow through on promises of spending cuts when she presents her Spring Statement to Parliament this week, after the latest data showed public sector borrowing has been higher than expected. In February, the government borrowed £10.7 billion, which exceeded the OBR forecast for £6.5 billion. The consensus forecast was £6.6 billion. Disappointing GDP growth figures have meant that the government has received less than expected tax revenue and thus had to rely more on debt to balance the books.
However, there are signs the Chancellor is improving the government’s standing in the eyes of the global financial markets. UK 10-year Gilt yields stood at 4.69% on Friday, which only slightly up on the 4.66% seen a week earlier and 4.65% two weeks ago. This follows the Bank of England’s widely expected decision to leave the Base Rate unchanged at 4.50% last Thursday. The Bank in its press statement cited volatility in the global economy and financial markets to support its decision. One could argue the relative stability of Gilt yields in the run-up to a fiscal statement that is coinciding with an economic slowdown is a vote of confidence in the Chancellor from investors.
Our full analysis of last week’s Base Rate decision can be found here.
Given the sluggish economic backdrop, the latest MSCI UK Monthly Property Index made for relatively encouraging reading. The all-property capital growth index rose m-on-m for a seventh consecutive month in February, albeit only by 0.16%. As in previous months, the industrial sector led the way with a rise of 0.27%, up from 0.24% in January. We feel the mood of investors towards commercial property has improved lately, and the February MSCI figures appear to support that view.
The Chancellor’s Spring Statement will be the headline dominating news story of this week, although also out on Wednesday are the inflation numbers for February. Forecasting this set of figures is a difficult call, as on the one hand wages growth has been remarkably high for some time. However, we are now several months into an economic slowdown, which should decelerate inflation. On balance, we see these opposing pressures neutralising each other, leaving inflation steady.
UK retail sales figures for February are published on Friday. The numbers for January were upbeat, driven by rising food store sales, so we would expect some deceleration, but probably still a positive figure given consumers are currently enjoying real-terms pay growth. Also, there has been a small improvement in consumer confidence with the GfK index up from -20 in February to -19 in March. Recent data from the British Retail Consortium suggests the momentum for food stores seen in January did continue into February.
This week’s figures
WEDNESDAY 26 MARCH
UK CPI Inflation, y-on-y, February
3.0% previous
3.0% forecast
We feel positive and negative counter pressures will neutralise each other, resulting in another reading of 3.0%. However, inflation is widely predicted to move higher in the spring and summer, then start to slow in the autumn.
WEDNESDAY 26 MARCH
The Chancellor’s Spring Statement, March
n/a previous
n/a forecast
The Treasury has briefed the media that this will be an austerity fiscal statement, although on the positive side, no tax increases are expected on this occasion.
FRIDAY 28 MARCH
UK Retail Sales, m-on-m, February
1.7% previous
0.3% forecast
More people eating at home as households reined in spending and dined out less post-Christmas buoyed sales for UK food stores in January. We suspect much the same happened in February, resulting in further sales growth but at a slower pace.
