BofA Securities has raised its forecast for the United Kingdom’s economic growth in 2025 to 1.3%, citing stronger-than-expected second-quarter results but warning that underlying momentum remains fragile, in a note dated Friday.
The revision, up from its earlier projection of 1.2%, comes as the economy grapples with tariffs, higher taxes and looming fiscal tightening.
“We slightly raise growth this year to reflect stronger outturns, but highlight that underlying growth is weak amid tariffs and taxes,” the brokerage said.
The brokerage noted that growth in the second quarter was supported by government spending and inventories, but private domestic demand contracted, driven by weak consumer spending and falling business investment.
Exports also came under pressure, with goods shipments to the United States down 27% in value as tariffs took hold.
Inflation forecasts were also revised higher. Consumer prices are now expected to rise 3.4% in 2025 and 2.4% in 2026 before returning to the Bank of England’s 2% target in 2027.
“We raise our 2025 inflation forecast from 3.2% to 3.4% and 2026 inflation forecast from 2.2% to 2.4% on the back of higher-than-expected outturns, higher oil prices and announced 2% increase in Ofgem price cap in October,” the brokerage said.
On monetary policy, Bank of America said it continues to expect two interest rate cuts, one in November and another in February, bringing rates to 3.5% by early 2026. But it stressed that the schedule is far from assured.
“Timing of future cuts is becoming more uncertain due to the BoE’s concerns about inflation persistence,” the brokerage said.
The brokerage also flagged the government’s upcoming Autumn Budget on Nov. 26 as a point of risk. It estimated that fiscal headroom could shrink by £20 billion to £30 billion, forcing the government toward tax increases. “This is likely to add downside risks to growth in late 2025 and 2026,” the brokerage said.
In its assessment, Bank of America said that while the UK economy has avoided a sharper slowdown, growth remains “slightly below-trend” and vulnerable to fiscal tightening and external trade pressures.
The raised forecast to 1.3% reflects near-term strength, but the brokerage emphasized its “conviction on the terminal rate of 3.5%,” underscoring a cautious outlook for the years ahead.
Source :
https://www.investing.com/news/economy-news/bank-of-america-lifts-uk-2025-growth-outlook-to-13-as-inflation-risks-loom-4226190
