For the data behind the commentary, download the full August 2025 UK Economy & Housing Report.
Mpc to hold (and cut)?
While the August meeting delivered a 25 basis point cut, the September meeting of the MPC will likely see rates held. This will maintain the recent cutting rate of cut-hold-cut.
This meeting will also set the pace of quantitative tightening over the next 12 months. The likelihood is that the MPC will reduce the rate of tightening of the past number of years – at £100 billion a year. If it were to do so, that would alleviate some of the pressure on gilts.
REMEMBER REMEMBER, THE 26TH OF NOVEMBER
We now have a date for the Budget – the 26th of November. In terms of scrutiny, the Budget will be at the forefront of investors’ decision-making well in advance of the day. There has been significant attention on the Chancellor’s headroom, which in the last few weeks has turned to talk of a fiscal crisis – albeit the threat is likely overstates.
Nevertheless, there is no doubt that the Chancellor of the Exchequer is in an unenviable position. At the end of 24/25, public borrowing was at 5.1% of GDP, compared to 2.9% in the five years prior to the pandemic. Public sector debt is still running at 96% of GDP as of the end of July. Furthermore, there are a number of factors eroding her headroom - the volatility and upward pressure on gilts, and the backtracking on winter fuel payments – eroding what was already a slender headroom.
The outcome of the OBR’s forecasting process will then determine how much the Chancellor has to raise to keep headroom. The extent is still unclear - this could range from £18 billion to approximately £30 billion. With Labour unlikely to further cut services, this will most likely come through increased taxation and will impact business and consumer confidence in the short-term – and drag on growth.
The economy proved resilient in the first half of the year, but H2 may see stronger headwinds.
