Morgan Stanley lowers UK growth forecast
Morgan Stanley forecasts tough year for UK economy
Morgan Stanley has lowered its UK economic growth forecast for 2025, citing emerging signs of economic slowdown. The U.S. bank now projects GDP growth of 0.9% for the year, down from its earlier estimate of 1.4%.
This figure is also below the market consensus of 1.3%. The revised outlook reflects weaker private consumption and business investment in the first half of 2025, compounded by labour market challenges and slowing real disposable income growth in 2024, reports Investing.com.
The downgrade comes as Morgan Stanley observes emerging risks in the UK economy. Cuts to non-essential business spending and survey data pointing to flat growth in late 2024 have contributed to a more cautious outlook.
Bank of England Rate Cuts Expected
In response to the slowdown, Morgan Stanley anticipates that the Bank of England (BOE) will reduce interest rates five times in 2025. This would bring the Bank Rate down from its current level of 4.75% to 3.5% by year-end.
While the bank initially expected the BOE to begin cutting rates in March, it now predicts the first cut will come in June. Additional rate reductions are expected in May, August, and November. However, Morgan Stanley acknowledges a close call for earlier action, noting that risks to growth and inflation remain finely balanced.
Despite the anticipated rate cuts, Morgan Stanley remains optimistic about the short-term outlook for the British pound. Analysts expect a recovery in GBP/USD, driven by U.S. dollar weakness amid declining U.S. interest rates and the unwinding of short GBP positions.
Additionally, as Treasury yields surge and the dollar strengthens, Morgan Stanley strategists caution that U.S. equities may face significant challenges in the first half of 2025.
