Investing.com -- Despite a slight contraction in the United Kingdom (TADAWUL:4280)’s economy in January, the nation’s growth is expected to rebound and continue through 2025, according to ING on Friday.
The UK’s economy experienced a minor dip at the beginning of the year, with a 0.1% decrease in output throughout January. This was primarily due to a downturn in manufacturing, which has seen growth in only one of the past five months, significantly impacted by a decline in car production.
Despite the disappointing start to the year, ING emphasized that the volatility of monthly GDP figures should not overshadow the broader positive trend.
They pointed out that a robust December, with a 0.4% increase in economic growth, provides a solid foundation for the first quarter, which is projected to grow by 0.3%. ING believes that increased government spending, particularly in wages, will contribute positively to the GDP throughout the year.
However, ING has raised concerns regarding the projections made by the Office for Budget Responsibility (OBR), the Treasury’s independent forecaster. The OBR’s 2% growth forecast for 2025, announced in October, was deemed overly optimistic by ING, with a more realistic expectation being around half of that figure.
The firm also noted that any further downward revisions by the OBR could affect the Chancellor’s efforts to rebuild fiscal headroom, which has been compromised by higher market rates.
In light of the recent economic data, including the January GDP figures, ING does not anticipate a significant shift in the Bank of England’s (BoE) stance ahead of its meeting next week.
The BoE appears to be adopting a more cautious approach due to persistent wage growth and services inflation. A key concern is the effect of an upcoming tax increase on employers and its potential impact on the labor market, which has shown signs of cooling.
ING expects the BoE to maintain its quarterly pace of rate cuts, with adjustments likely in May, August, and November of this year.