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Stalling Growth, Shifting Risks as Outlook Falters Amid Rising Headwinds
NIESR
2025.05.20
Monthly GDP rose by 0.2 per cent in March, following a 0.5 per cent growth in February, mainly driven by the Services Sector. This brings GDP growth for Q1 2025 to 0.7 per cent.
Economic fragilities are becoming increasingly pronounced, as rising domestic labour costs and external global trade headwinds clash with weak investment and subdued demand. Purchasing Managers’ Index for all sectors indicates contraction for the first time since October 2023, signalling a broad-based slowdown. We project that GDP will grow by 0.4 per cent in the second quarter of 2025.
Policymakers and the Bank of England face a delicate balancing act in the short term―supporting growth without hindering disinflation progress. Over the long term, fiscal options are limited, making structural reforms and the credibility of long-term growth plans even more crucial.