A raft of recent economic data releases has provided both disappointment for the UK chancellor and positivity regarding the possibility of an upcoming interest rate cut.
From GDP to trade numbers to inflation, each data set provides a crucial window into the performance of the UK government and how British industry is responding to the ongoing tariff war.
Growth
Last week, the Office for National Statistics (ONS) published a GDP growth figure that took some by surprise – a contraction of 0.1%.
May proved a second consecutive month of falling economic activity, defying the predictions of economists polled by Reuters, who expected modest growth of 0.1%.
Chancellor Rachel Reeves called the numbers “disappointing” in remarks reported by the BBC, and she reiterated that she is “determined to kickstart economic growth”. Shadow chancellor Mel Stride said the government’s “reckless choices” were the reason for the contraction.
The pharmaceutical and automotive industries reported falling production in May, according to the ONS, which emphasised that the former can be “erratic”.
The figures for April perhaps give a hint at one drag on the UK economy – as ONS director of economic statistics Liz McKeown noted then, there was a large fall then in exports to the US following the country’s imposition of new tariffs.
Trade
Last week’s trade stats suggested on the surface that the UK’s economy is recovering from the hit of US tariffs, with a £0.3bn increase in exports to the American market in May 2025.
As the ONS said, however, there was a “substantial decrease” in April as a result of tariffs. The overall rate “remained relatively low” despite growth in the export of precious metals.
Goods exports overall increased by £0.6bn, a rise of 2.2%, with rises in exports to both EU and non-EU countries, though goods imports also increased by the same value.
The goods and services trade deficit widened by £6.7bn to £13.2bn in the three months to May 2025, owing to a “large rise in goods imports and a fall in goods exports”.
Inflation
This week’s inflation rate data was also less than ideal for the chancellor, with the Consumer Prices Index (CPI) hitting 3.6% in June in an unexpected uptick for the figure.
The number is at an 18-month high for price growth, and was driven by a rise in the cost of petrol, as well as air and rail travel, food and clothing.
The increased rate has not necessarily hit hopes of a cut to the Bank of England’s (BoE) base rate. The BoE is still widely expected to make a cut before the autumn, if investor behaviour is to be believed.
Sanjay Raja, chief UK economist at Deutsche Bank, told the FT that an August cut to the interest rate was not “in jeopardy”. That’s because “there’s enough of a slowdown in GDP” to warrant a “‘gradual and careful’ easing of monetary policy”. Raja also noted there is impetus for a cut from new data on jobs.
Employment
The labour market in the UK has also been cooling, the ONS noted in stats published today.
June marked a fifth consecutive monthly drop in payroll employment in the UK, with 41,000 fewer payrolled staff, while wage growth also decelerated despite increasing inflation. It marks a 178,000 – or 0.6% – drop in employment compared with June 2024.
It remains possible that this number will be revised, after a previous estimate of a 109,000-job drop between April and May was revised down to 25,000 in the ONS’ recent release.
The fall that began in April coincided with both the beginning of US president Donald Trump’s latest tariff salvo, as well as a rise in the cost of employing workers for firms as a result of an increase in their National Insurance contributions.
Retail sales
The British Retail Consortium (BRC) has issued its latest snapshot numbers on retail sales in the UK, indicating 3.1% growth in June compared with the same time last year. It follows a dip in May of 2.7% year-on-year.
The BRC noted that high temperatures in June had provided a boost to the number, with a 4.1% increase in food spending compared with the same month in 2024, as well as sales of electric fans, and of sports and leisure equipment.
BRC CEO, Helen Dickinson, said food inflation was at least partly responsible for the figure, noting that it has “risen steadily over the course of the year”.
