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11 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

GDP falls again as momentum slows

UK GDP fell for a second consecutive month in May - a clear sign that the strong momentum seen in Q1 is fading. Some of Q2's weakness reflects quirks, with some activity brought forward in Q1 due to US tariffs and tax changes being introduced in April.
Looking past one-off factors, the UK growth outlook remains challenging. US trade policy will add to the drag from tightening fiscal policy and the impact of some mortgagors refinancing to higher interest rates.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “Monthly GDP fell by 0.1% in May, following April's 0.3% fall, with mixed performance across the sectors. The services sector picked up by 0.1%, with business-to-business services leading the way, while legal services activity recovered following April's change in stamp duty thresholds. Output in the consumer-facing services sector declined as the effects of April's unseasonably warm weather unwound. The manufacturing sector, which is particularly sensitive to changes in international trade policy, saw output decline again in May.

“Having recorded a very strong start to the year, May's soft GDP reading makes it all but certain that growth will slow sharply in Q2. Some of the drop-off reflects payback from Q1's unusual spike in aircraft purchases and a large rise in exports to the US, a reflection of some businesses attempting to get ahead of changes in US trade policy. However, the data also continues to show signs of residual seasonality, with stronger momentum seen at the start of each year being followed by an abrupt slowdown in subsequent quarters. 

“Beyond the potential anomalies in the recent GDP data, headwinds to growth will likely persist over the remainder of this year and into next. US trade policy is expected to limit access to the UK's most important export market, and closer to home, tighter fiscal policy and the lagged effect of past interest rate rises will continue to weigh on growth prospects.”

07 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Housing market’s soft patch may be fading

Having fallen in May, the Halifax house price measure was flat in June, continuing a recent period of weakness following the change in stamp duty thresholds. Nonetheless, house prices remain resilient compared to the same point last year.
While the housing market entered a soft patch following the change in stamp duty thresholds, there are already signs that this will be short-lived. We continue to think that conditions are in place for a modest improvement in H2 as interest rates fall, but housing affordability remains challenging.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “House prices were flat in June having fallen by 0.3% in May. Across the three months after the April change in stamp duty thresholds, house prices have fallen by 0.3%, offsetting some of the 0.5% increase in Q1. Overall, house prices are higher than they were 12 months ago having grown by 2.5%

 “The housing market has experienced a soft patch in recent months as it slowed sharply following April’s changes in stamp duty thresholds. With buyers having rushed through purchases ahead of the deadline, transactions fell substantially in April, and despite a slight recovery in May, they remained low compared to the same time last year. However, there are already signs that the weakness is easing with mortgage approvals for new home purchases rising in May, which will likely lead to an increase in housing transactions within a couple of months.

 “By the second half of this year, we think that the soft patch in the housing market will start to fade and that the conditions will be in place for a modest pickup. Interest rates still have further to fall, although cuts will continue to be gradual, and the labour market will continue to function well. But ongoing affordability challenges, coupled with ongoing economic uncertainty, will still see some households hit pause on major purchases for the time being.”

04 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Construction sector will be challenged as economic momentum slows

Despite another improvement, the S&P Global Construction Purchasing Managers’ Index (PMI) still pointed to falling activity in June as businesses continue to report limited opportunities for new work. However, as seen in other parts of the economy, a deterioration in sentiment rather than output likely explains some of the reported weakness in the construction sector.
Even if the PMI readings are too pessimistic, the construction sector does face a difficult economic backdrop with signs that the economy is slowing. US tariffs, tight fiscal policy and some households still refinancing their mortgages to higher interest rates will all act as a break on growth across the second half of this year.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “The construction PMI pointed to a marginal fall in activity, recording 48.8 in June. The reading marked an improvement from May when the survey scored 47.9, and is the highest reading since the PMI fell into contractionary territory in January. The improvement was driven by residential house building, with commercial and civil engineering still declining during the month. Businesses continued to report a very challenging operating environment with intense competition to win new work in the face of heightened economic uncertainty.

“Recent PMI readings appear to have been overly pessimistic and have probably been reflective of a shift in business sentiment rather than activity. It’s eye catching that the survey has been in negative territory over the course of this year, but official estimates suggest construction activity has increased this year-to-date. However, it remains clear that the sector will face several headwinds over the coming quarters. Economic uncertainty is likely to persist, and some major projects could be postponed, while ongoing labour shortages combined with the higher National Insurance Contributions (NICs) and National Living Wage will see cost pressures sustained.

“The wider economy has started this year strongly, but the signs are there that momentum is already starting to fade, even if business surveys are too pessimistic. The imposition of US tariffs has reduced the UK’s access to its key trading partner, and combined with the lagged effect of past interest rate rises and tightening fiscal policy, we expect growth to be muted this year and into next.”

03 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

PMIs suggest growth was relatively soft in Q2

June’s final UK services Purchasing Managers’ Index (PMI) reported a stronger pace of activity growth, alongside a slight improvement in new orders from domestic customers. The composite PMI implied modest growth in activity in Q2 as a whole, and we expect a similar outturn for GDP growth.
The survey's balances for costs and prices continued to cool in June, while there were further signs that the labour market is loosening. Provided there are no large upside surprises in this month's official inflation and labour market data, the Monetary Policy Committee (MPC) will likely continue to gradually lower Bank Rate, with a 25bps cut coming at the August meeting.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “June's final S&P Global survey signalled a healthy pickup in services activity. The PMI rose to 52.8, from 50.9 in May, and was well above the flash result (51.3). Alongside June's higher PMI, survey respondents also reported a modest increase in new orders, particularly from domestic customers amid improved consumer and business spending. With June's manufacturing survey having reported a smaller fall in output than in May, the composite PMI rose to 52.0, up from 50.3 a month earlier.

“After factoring in the improvement seen in June's S&P Global survey results, the composite PMI points to a modest expansion across Q2 as a whole. The survey's readings tend to be heavily influenced by fluctuations in business sentiment rather than genuine change in private sector activity, but on this occasion, it appears likely that official GDP growth in Q2 will be broadly in line with the survey’s findings.”

“June's services survey also showed further signs that the labour market is loosening, with another fall in the employment balance. Meanwhile, businesses reported that cost and price pressures continued to cool. Looking ahead to August’s MPC meeting, it’s worth noting that the Committee has reduced Bank Rate at alternate meetings since the rate-cutting cycle began, and held rates at 4.25% in June. Barring any large upside surprises in this month’s official labour market and inflation data, the MPC will likely maintain its cut-hold trend with a 25bps cut to Bank Rate in August.”

01 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Housing market remains in a bumpy patch

Having ticked up in May, the Nationwide House Price Index fell back significantly in June as the housing market remains in a volatile patch following the change in stamp duty thresholds in April. But looking back over the last 12 months, house prices are still higher than at the same time last year.
The recent choppiness in house prices will likely be short-lived, with a modest pickup in the housing market expected in the second half of the year as interest rates fall, but affordability challenges remain.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “House prices fell by 0.8% in June, more than undoing the 0.4% pick up recorded in May. Of course, in any individual month house prices can be quite volatile and this has been exaggerated by April’s change in stamp duty thresholds. Nonetheless, house prices are still higher than they were 12 months ago. However, over the last few months house prices have chopped sideways, so the annual growth rate has slowed to 2.1% in June from 3.5% in May.

“The change in stamp duty thresholds distorted the market over the first half of the year. In the run up to the April deadline, the market strengthened as transactions were rushed through. But that momentum proved temporary, and transactions fell substantially into April. Since then, the housing market has been in a soft patch, but we think this will prove temporary, with the rise in May’s mortgage approvals for new home purchases, which lead housing transactions, already indicating it’s starting to fade.

“The housing market should see a modest pickup in the second half of the year as further interest rate cuts and a relatively low unemployment rate support demand. However, with house prices remaining high, affordability challenges and ongoing economic uncertainty will likely hold back some buyers.”

30 June 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Headwinds to growth are intensifying

The final estimate of Q1 GDP confirmed that the UK made a strong start to the year. However, there appear to be problems with residual seasonality, while some of the Q1 strength reflected one-off effects. Some cracks are already starting to emerge, and growth looks likely to slow significantly in Q2.
The UK looks set for another year of weak growth in 2025. The big real income gains are in the rear-view mirror, fiscal policy is set to tighten, and the lagged effects of past interest rate rises are still being felt. Latterly, those domestic headwinds have been supplemented by the impact of global trade market uncertainty.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “Today's GDP data confirmed the strong to start to 2025 with output having grown by 0.7% in Q1, although this pace of growth appears temporary. There appear to be problems with residual seasonality in the data which is making the early part of the year look artificially strong. Q1 was also boosted by a strong increase in aircraft investment, which is likely to unwind, and some business appears to have been brought forward to beat changes in US trade policy. The early signs are that the UK looks set for much softer growth in the second quarter of 2025, with output already having fallen in April.

“A feature of the last year was that households preferred to save rather than spend a lot of their real income gains. A saving ratio of 10.9% in Q1 was far higher than usual, although it was a fall of 1.1ppt from Q4. With earnings growth slowing and inflation set to rise, growth in real income looks set to slow across the rest of this year, but with scope for households to save a little less, there is space for consumption to be cushioned from this slowdown.

“After the strong start to 2025, the UK looks set for another year of weak growth, with headwinds continuing to intensify. On top of weakening real income growth, fiscal policy has been tightened, while some households will still feel the lagged effects of past interest rate rises. Global trade market volatility and the accompanying elevated levels of uncertainty have added to the headwinds.”

30 June 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Mortgage activity recovers as stamp duty distortions start to fade

UK net mortgage lending and approvals recovered in May, as the volatility caused by the stamp duty normalisation at the end of March began to fade. With affordability constraints continuing to ease, we expect to see a gradual recovery in activity and prices.
Net unsecured lending declined in May due to a rebound in repayments. Despite headwinds from a range of sources, consumer spending and credit growth should edge up this year and next as households slowly shed the significant caution seen in recent years.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “The recent volatility in mortgage lending data, caused by changes to the stamp duty threshold at the end of March, began to fade in May. Net secured lending rose to £2.1bn, following a £0.8bn fall in April, as gross mortgage lending rebounded to a more typical level. An easing in stamp-duty distortions and a fall in quoted mortgage rates supported stronger mortgage activity in May, with approvals for new home purchases rising to 63,032, from 60,656 in April.

“Now that volatility has started to ease, the fundamental drivers of mortgage demand should reassert themselves. Mortgage rates are now much lower than they have been for most of the past three years, while nominal earnings growth has been strong. Together, these forces mean affordability is much less stretched than it has been in the recent past. As the affordability gap continues to recede, we think this should create the conditions necessary for a gradual recovery in activity and prices in the second half of 2025 and into 2026.

“Net unsecured lending fell to £0.9bn in May, from £1.9bn a month earlier. Gross lending rose, but repayments rebounded more strongly. Consumers have exercised extreme caution in recent years, and whether this continues is a key uncertainty around the consumer outlook. Surveys suggest consumer sentiment is gradually ticking up, and we expect this to mean households will be keener to spend a little more this year and next. This should help to cushion some of the headwinds from softer real income growth, tighter fiscal policy, and the lagged impact of past interest rate rises on mortgagors.”

20 June 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

May’s dip in retail sales is payback for earlier strength

UK retail sales volumes dipped in May, as the outperformance seen over the first four months of this year almost entirely corrected. The much weaker reading was driven by a significant fall in spending at food stores, but the data remains volatile and recent retailing outturns should be interpreted with caution.
Looking through these data concerns, the sector's underlying trend has been one of modest growth and we expect this to continue. Firming confidence suggests consumers are finally starting to shed their caution, but weaker real income growth, tighter fiscal policy, and the lagged effect of past interest rate rises will likely prevent a strong pickup in spending.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “Retail sales volumes fell 2.7% month-on-month in May, but this followed large rises in three of the previous four months, and May's decline appears to be payback for that earlier strength. A fall in food store spending accounted for most of May's weakness, as the sector's unusually large gain in April unwound, but all of the major categories saw sales decline.

“May's lower retailing outturn does not appear to be a major cause for concern. Retail sales data is volatile and large month-on-month swings in the series should always be interpreted with caution. However, the Office for National Statistics' (ONS) difficulty in adjusting for recent shifts in seasonal spending patterns has likely exaggerated both the strong pickup in retail sales at the start of this year and the subsequent unwinding. Indeed, despite the substantial fall in today's release, retail sales remain slightly above where they were at the end of 2024.

“Looking at the wider picture, the underlying trend appears to have been one of modest growth, and we expect this to continue going forward. Firming confidence suggests consumers are finally starting to shed the significant caution of recent years. However, the headwinds from weaker real income growth, tighter fiscal policy, and the lagged effects of past interest rate rises continuing to emerge are likely to prevent a strong increase in spending.”

26 Mar 2025 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY Comments on Minding the gap

No tax policy announcements but a wealth of tax administration

“Even with no major tax policy announcements in today’s Spring Statement, many businesses will still feel the pinch when measures such as the increase to employer National Insurance contributions announced at the Autumn Budget come into effect next month.

“At the same time, the ongoing unsettled economic and geopolitical environment means many businesses in the UK are continuing to face significant uncertainty with an international tax landscape that is also changing rapidly.

“In response to such choppy conditions, multinationals will be looking to the Government to set out a clear long-term tax strategy, whilst still remaining agile. Providing clear intent and direction for the future of its tax regime – such as that laid out in the Corporate Tax Roadmap – presents an opportunity for the Government to further support the UK’s many points of attraction for foreign investment, and emphasise its position as a safe harbour for global businesses that are grappling with the current market challenges.”

26 Mar 2025 | EY comments | Media contact: Victoria Luttig - Manager, Media Relations, Ernst & Young LLP

EY comments on the absence of pension reform in the Spring Statement 2025

Paul Kitson, EY’s UK Pensions Consulting Leader, comments on the absence of pension reform in the Chancellor’s Spring Statement:

“Pension reform is a central focus in the Government’s growth agenda, but with nothing new announced in today’s Spring Statement, the industry must now look to the expected Pension Scheme Bill and the upcoming Mansion House Speech. The Bill is expected to outline how surplus withdrawals from defined benefit (DB) pension schemes can be used to support economic growth – something that could unlock more than £150bn for UK businesses to re-invest. Following this, the Mansion House Speech could provide further detail on how pension reform will boost retirement outcomes for many millions of UK savers and support growth for innovative companies."

26 Mar 2025 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

Laura Mair, UK Managing Partner for Tax and Law at EY, said:

26 Mar 2025 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on Tax policy changes conspicuous by their absence

Chris Sanger, Tax Policy Leader at EY, said: “After weeks of speculation, the Chancellor kept her promise of one fiscal event a year, leaving tax policy announcements to the Autumn Budget. Attention will now turn to June’s Spending Review, followed by November’s Budget, to see whether the Chancellor increases the headroom available within the fiscal rules following the OBR’s latest forecast.

“On tax, it was always unlikely that we’d see any further changes come out of today, particularly given that measures announced last October, such as the rise in employer National Insurance contributions, are yet to come into effect. However, what we may hear in the coming weeks are announcements on tax administration and simplification efforts. While not policy changes, these positive steps include consultations on e-invoicing and cost sharing and have the potential to both reduce the tax gap and attract greater investment in the UK.

“The Corporate Tax Roadmap, published alongside the last Autumn Budget, set out to improve the certainty and predictability of our tax regime. The Roadmap provided the foundation for reform, and the Government may now look to develop this document further, delivering on its aims to simplify the UK tax system and create confidence among businesses and investors, for the benefit of the economy"

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

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Media inquiries

11 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

GDP falls again as momentum slows

07 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Housing market’s soft patch may be fading

04 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Construction sector will be challenged as economic momentum slows

03 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

PMIs suggest growth was relatively soft in Q2

01 July 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Housing market remains in a bumpy patch

30 June 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Headwinds to growth are intensifying

30 June 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Mortgage activity recovers as stamp duty distortions start to fade

20 June 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

May’s dip in retail sales is payback for earlier strength

26 Mar 2025 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY Comments on Minding the gap

26 Mar 2025 | EY comments | Media contact: Victoria Luttig - Manager, Media Relations, Ernst & Young LLP

EY comments on the absence of pension reform in the Spring Statement 2025

26 Mar 2025 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

Laura Mair, UK Managing Partner for Tax and Law at EY, said:

26 Mar 2025 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on Tax policy changes conspicuous by their absence