Key points
- BofA Securities upgraded its UK 2025 GDP growth forecast to 1.3% from 1.2%, citing stronger-than-expected Q2 results.
- The revision acknowledges stronger Q2 growth driven by government spending and inventories, despite weak private domestic demand.
- Inflation forecasts were revised upwards to 3.4% in 2025 and 2.4% in 2026 due to higher-than-expected outturns and oil prices.
- BofA still anticipates two interest rate cuts by the Bank of England in late 2025 and early 2026, which would bring rates to 3.5%.
Bank of America Securities (BofA) has revised its prediction for the United Kingdom’s economic growth in 2025 upward to 1.3%, a slight increase from its previous forecast of 1.2%. This upward adjustment reflects the stronger-than-anticipated economic performance observed in the second quarter of the year.
However, the brokerage firm emphasizes that the underlying momentum of the UK economy remains fragile and vulnerable to various headwinds.
The improved short-term outlook is primarily attributed to government spending and inventory build-up, which boosted growth in the second quarter. This positive performance, however, contrasts sharply with a contraction in private domestic demand, stemming from subdued consumer spending and reduced business investment.
Furthermore, exports faced significant pressure, particularly to the United States, experiencing a substantial 27% drop in value due to the impact of tariffs.
BofA’s revised forecast also incorporates an upward adjustment to its inflation projections. Consumer prices are now expected to reach 3.4% in 2025 and 2.4% in 2026, before gradually declining to meet the Bank of England’s 2% target in 2027.
These revised figures account for higher-than-anticipated inflation readings, escalating oil prices, and the recently announced 2% increase in the Ofgem price cap.
Despite the upward revision in GDP growth, BofA maintains a cautious outlook. The brokerage anticipates two interest rate cuts by the Bank of England—one in November and another in February—resulting in interest rates being reduced to 3.5% by early 2026.
However, this projection is contingent upon several factors, and the timing of these cuts is considered uncertain, primarily due to the Bank of England’s concerns about the persistence of inflationary pressures.
The upcoming Autumn Budget, scheduled for November 26th, presents a significant source of uncertainty and potential downside risk to growth due to the potential for fiscal tightening and reduced government spending.
