3 key themes currently
impacting the UK
economic outlook

Following the Chancellor’s Spring Statement last week, we caught up with Sanjay Raja, Deutsche Bank’s Chief UK Economist, to get his take on three key questions about the outlook for the UK economy.

1. Is the growth slowdown behind us?

Q1 2025 is shaping up to be better than expected in the UK. Consumers are spending. Business confidence is on the rise. Can it be sustained, especially with tax rises from the Autumn Budget set to go ‘live’ in April? For now, we think yes. Notwithstanding trade uncertainty, we think the UK domestic economy looks to be bouncing back. We will be keeping a close eye on business investment and household consumption through the coming months. Savings rates, we expect, will start to drift lower. And we expect the economy to accelerate following a lacklustre performance in H2 2024.

2. Will the UK be hit by the ongoing trade uncertainty?

On 2 April, President Trump will set out his plans for ‘broad-based’ tariffs. We remain optimistic that the UK could avoid any direct and punitive tariffs. The question will be whether the UK will be dragged lower by a deteriorating external backdrop across the Atlantic and across the Channel. To be sure, trade wars pose the biggest risk to the UK’s near-term economic outlook.

3. Will the Bank of England be able to cut Bank Rate further?

We think so. We warned at the start of the year that the UK was entering a tricky period with rising headline inflation and firming inflation expectations. We see peak CPI hitting nearer 4% in September. This could be a stumbling block to a quarterly rate-cutting profile. We still think rates will come down. And we expect Bank Rate to drop to 3.25%. The worry for us now is whether the path towards neutral is slower owing to the rise in CPI and inflation expectations, particularly over the next two quarters.