This report comes from this week’s CNBC UK Exchange Newsletter. Like what you see? You can subscribe here.

send

When assessing the impact of 2025 on the UK economy, UK businesses and financial markets, it is tempting to focus more on what is not happening than on what is.

Most obviously, a widely expected rate cut by the Bank of England did not go as far as expected, while inflation failed to fall as much as the central bank and others expected.

For the economy as a whole, though, the forecasters were largely right.

At the beginning of the year, Most expect the UK economy to grow by 1.3%-1.5%based on regular comparisons of independent forecasts prepared by the Treasury Department.

The results were more or less in line with these expectations, but looking at the latest comparisons published last month, it’s worth noting that while most commentary around the UK economy has been persistently negative, the consensus has barely changed.

The big picture also masks some fascinating trends. UK GDP grew by 0.7% As Chancellor of the Exchequer Rachel Reeves likes to remind people, the first three months of the year were the best among the G7 economies.

However, this growth was hampered by exporters building up stocks ahead of US President Donald Trump’s tariffs, and by the middle of the year it was clear that the UK had fallen into 2024 mode – with strong growth in the first quarter tapering off.

Growth in the second quarter was only 0.3% and a The third place only accounts for 0.1%. In September and October, the latest months for which data are available, the economy contracted 0.1% month-on-month, reflecting first of all a sharp decline in auto production. Jaguar Land Rover suffers cyberattackSecond, there’s the country’s largest carmaker, a quiet housing market and weak consumer spending ahead of the November budget.

This means the economy is no larger at the end of October than it was at the end of May.

As the end of 2025 approaches, job market Flashing red light for danger. The unemployment rate has risen to 5.1%, its highest level since January 2021, while a closely watched survey published on Monday by the Recruitment and Employment Confederation (REC) reported that new job postings fell by 14.4% between October and November.

This is likely to reflect employers’ concerns about what Reeves will announce in his budget on November 26, but it is still surprising given the extent to which sectors such as retail have hired extra workers in the run-up to Christmas.

This suggests that the significant increase in employers’ national insurance contributions (NIC, a payroll tax) announced by Reeves in October 2024 and which comes into effect in April is having a lasting and harmful impact on the job market.

inflation surprise

It also leads to higher inflation – one of the major surprises of 2025. In last year’s final quarterly inflation report, Bank said It expects consumer price inflation (CPI) “to rise next year, reaching around 2.75% in the second half of 2025.”

As it turns out, the central bank was partially right about rising inflation. But its performance far exceeded expectations Hit 3.8% in Julyremained at this level for the next two months, then declined slightly Growth in October was 3.6% (We’ll find out what it did in November later today). Much of this is due to government policy.

As the bank noted in its report Latest monetary policy reportThe report released last month said: “It is currently estimated that abnormally large increases in administrative prices such as vehicle consumption tax and sewage charges have caused CPI inflation to exceed expectations by 0.4 percentage points. Food, beverage and tobacco prices are expected to contribute a further 0.4 percentage points.”

The central bank added: “Much of the remaining 1 percentage point overshoot is thought to reflect higher labor cost growth due to strong past wage growth and higher employer national insurance contributions, which in turn has pushed up services and, to a lesser extent, goods inflation.”

While energy costs are now starting to push inflation down rather than higher, other policy decisions will continue to exert upward pressure in the new year, including the recently announced above-inflation increase in the living wage for all ages, which is expected to push up food and drink prices, and the expansion of the sugar tax.

However, the sluggish performance of the UK economy does not appear to be having a negative impact on the stock market. After today, there are only six full trading days and two shortened trading days left this year, FTSE 100 Set to grow over 18% by 2025, now aiming to outperform S&P 500 Index This is the first time since 2022 and the third time in a decade.

But bear in mind that the FTSE 100 is not a good barometer of UK corporate health, as the index is filled with multinationals that generate only a small proportion of their revenue in the UK.

A more accurate indicator of how well UK businesses are quoting is a greater focus on the domestic market FTSE 250 Index Here, things are less encouraging, with the index up around 7% year to date.

Among them, some very well-known British businesses have gone through a difficult time, including WH Smith, A travel retail specialist whose shares fell around 44% due to an accounting error.

GreggsThe bakery chain’s shares have fallen nearly 40% this year on concerns about lackluster sales growth. in the same field, Domino’s Pizza is down about 43%, while another former stock market darling, the discount retailer bama drop of more than 53%. The fall in the share prices of the latter three all shows how severe the pressure will be on UK consumers in 2025, but sadly this is likely to continue as expectations are now more realistic about how much the Bank of England will cut interest rates in 2026.

CNBC Hot TV Picks

Vicky Pryce of the British Chambers of Commerce said artificial intelligence could help boost Britain’s flagging productivity – the group said Reeves’ budget would do little to jump-start the economy.

AlbionVC partner Dave Grimm discusses UK government investment in artificial intelligence development.

Former British Deputy Prime Minister Nick Clegg has joined Hiro Capital as a general partner in an effort to pivot to venture capital. Luke Alvarez, founder and general partner of Hiro Capital, is interviewed by CNBC’s Silvia Amaro.

— Holly Elliot

need to know

Google has announced the launch of its first “automated research lab” in the UK. The tech giant’s artificial intelligence arm, DeepMind, on Thursday unveiled a partnership with the country’s government to open the facility next year. It will focus on developing new superconducting materials and will provide British scientists ‘prioritise’ use of AI tools.

Trump files $10 billion lawsuit against BBC. The BBC aired a documentary in which Trump’s January 6, 2021 speech was edited to make it appear as if he was explicitly encouraging his supporters to carry out the attack united states capitol. U.S. President Donald Trump filed the lawsuit Monday night, Accused BBC of defamation.

The UK economy shrank by 0.1% in the three months to October. economists GDP is expected to remain stagnant During that time. The economy grew 0.1% in the three months to September.

— Wenping Yang, Holly Elliot

Quote of the week

in the market

this FTSE 100 Stocks were lower on Tuesday as employment data from the Office for National Statistics showed Unemployment rate rises to 5.1% During the three-month period from August to October, it hit the highest level since January 2021.

However, the UK blue chip index rose 0.44% since last Wednesday to close at 9684.79 on Tuesday as new UK PMI data pointed to a pick-up in private sector activity following the autumn budget.

In personal names, Endeavor Mining It hit a 52-week high of 3,746.00 earlier this week and was one of the FTSE 100’s biggest gainers at Tuesday’s close. The gold miner closed up 2.9%.

elsewhere, EasyJet and JD Sports Two other stocks also stood out in the final week of trading before Christmas, rising 3.2% and 2.6% respectively on Tuesday.

at the same time, GBP GBP/USD has risen steadily over the past week, with GBP/USD edging up slightly on Tuesday afternoon to $1.3423 from $1.3382 last Wednesday.

UK government benchmark yield 10-year bond UK government bonds, also known as gilts, edged higher, closing at 4.519% on Tuesday, compared with 4.511% a week ago.

— Hugh Lesk

coming soon

December 17: UK inflation rate in November
December 18: Bank of England interest rate decision
December 19: GfK consumer confidence data for December

— Holly Elliot