Deutsche Bank economists Sanjay Raja and Maui Brennan say the UK enters autumn as the fastest-growing G7 economy, helped by strong ICT and AI-related investment and improving productivity. However, they expect second-half growth to slow as temporary supports from the hot summer and World Cup fade, higher energy prices bite, and retail spending fatigue and seasonal drags weigh on activity, squeezing real disposable incomes.
Growth momentum set to moderate
“The UK heads into the autumn as the fastest growing G7 economy. Hopes of a productivity revival are rising. Signs of a labour market stabilisation are brewing.”
“Brace for a slowdown – but track AI investment. The UK economy has been on a tear lately. No other G7 economy has grown faster than the UK this year.”
“But all tell-tale signs point to a slowdown in H2-26. Why? For starters, one-off supports to GDP growth from a sun-soaked summer and World Cup will naturally fade.”
“While spending in the first half of the year may have been buoyed by credit card lending, we expect higher prices to squeeze real disposable incomes – particular as household dual fuel bills rise in Q3 onwards.”
“Three, seasonal drags on momentum we think is also likely, with the UK unlikely to maintain an annualised growth pace of ~2% into H2.”
“Inflation has hit its nadir, and emerging pressures are poised to see CPI rise well above the Bank’s target in the coming quarters.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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