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Scooped by
Graham Watson
onto Macroeconomics: UK economy, IB Economics December 17, 2025 9:17 AM
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Monetary policy committee, cautious in recent months, expected to respond with cut in interest rates
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Output shrank for 12th month in a row in December, while housebuilding in deepest slump since 2020
Graham Watson's insight:
The weak state of the construction sector doesn't bode well, either for future economic growth or the government's ability to achieve its own housebuilding targets. Construction has many complements and the fact that the PMI is so far below 50 must be a concern.
That said, most of those polled seemed to be expecting things to pick up in 2026, so that's encouraging although subject to the availability of factors of production, notably labour.
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Businesses being hit by rising cost of interest rates, energy costs and wages, says Resolution Foundation
Graham Watson's insight:
The Resolution Foundation are forecasting that 2026 will see rising unemployment, largely as the result of three factors seeing a greater number of so-called zombie firms going bankrupt: interest rates, energy costs and higher wages, notably the minimum wage.
However, it strikes be a slightly behind the curve - interest rates have fallen and are likely to continue to fall, energy costs have only just inched up, although the rise in the minimum wage will impose higher costs on firms.
Even then, the Resolution Foundation stress that the medium-term effects of such a change are likely to be positive, with zombie firms being replaced by more efficient rivals.
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Carmakers such as MG, BYD and Chery are set to pass 200,000 mark in sales, analysis suggests, double 2024’s total
Graham Watson's insight:
The Chinese are coming: it appears as though Chinese brands such as MG, BYD and Chery have all gained ground, such that their combined sales of over 200,000 and 10% of all UK demand.
It's a remarkable change given that around 15 years ago, total sales of Chinese cars were around 1,500.
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Figures suggest the surge in post-Christmas shoppers was the strongest in a decade.
Graham Watson's insight:
Contrary to an earlier article, it seems that consumer spending wasn't as slack as forecast. In fact, it was the strongest for a decade - so much for the reliability of data - and a warning that you might want to take a broader overview of the macroeconomic environment.
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Although shoppers are still bargain-hunting, fewer people headed to the high streets and shopping centres compared with last year.
Graham Watson's insight:
The initial signs from the Bank Holiday sales are that consumer spending remains flat, with visits to the High Street down on the previous year, and Barclay's expecting people to "spend £3.6bn in the sales, down from the £4.6bn they forecast for the sales in 2024".
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Labour urged to accelerate reset with Brussels as many exporters struggling to trade in the EU after Brexit deal
Graham Watson's insight:
Is 2026 going to be the year of Brexit, with the government seeking to plot a way to closer ties with the EU and trying to offset the damage that's been done by our exit from the Single Market?
Watch this space. Certainly, it seems as though public opinion is moving in that direction, not least that of business.
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Business lobby survey finds firms ‘put brakes on key spending decisions’ before autumn budget
Graham Watson's insight:
As 2025 draws to a close, the Confederation of British Industry are reporting that we're currently in the midst of a slowdown of private sector spending, with low levels of investment, little in the way of hiring and general uncertainty governing decisions. As a result, they think we're likely to experience a private sector slowdown in the final quarter of the year.
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Brussels confirms Christmas carve-out from green levies will not happen, leading to Brexit-style requirements
Graham Watson's insight:
It looks like the UK steel industry, and a number of other sectors, are going to be facing increased bureaucracy and red tape in complying with the EU's carbon border adjustment mechanism (CBAM) which will not only have an opportunity cost, but it will also increase costs for UK exporters, even though the taxes don't need to be paid until 2027, and may actually have been withdrawn by then.
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Cash is now being distributed using a new Fair Funding formula that gives greater weighting to local authorities with high ‘deprivation’ scores
Graham Watson's insight:
Local government is one of the least 'sexy' parts of government spending, and yet it's also a god way of reducing poverty and tackling deprivation. This Guardian explainer looks at the adoption of a new 3 year financial strategy designed to divert more money to some of the most deprived areas, including Birmingham.
Above all else though, it makes clear the straitened circumstances that most local councils are operating in.
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ONS figures show public sector net borrowing was £11.7bn – £1.9bn less than in same month last year
Graham Watson's insight:
The public finances picture is similar mixed, with last month's government borrowing of £11.7bn being simultaneously higher than expected but lower than the previous month, and, the lowest November borrowing for 4 years. Even then though, total borrowing for the year so far is nearly £10bn higher than last year.
November's figure is always a little bit anomalous because there's a higher level of transfer payments because of seasonal factors such as the Winter Fuel Allowance.
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The Bank of England is hoping the interest rate cut will inject some much-needed momentum into the economy.
Graham Watson's insight:
Faisal Islam's analysis of yesterday's interest rate decision, with everyone hoping that the interest rate cut to 3.75% will help stimulate the economy in 2026. However, it's only going to have a marginal effect, and the fact that it was only voted for by a 5-4 decision, suggests that rates aren't going to tumble next year.
However, the news that inflation is likely to fall back to target by April rather than the end of the year is certainly good news and may feed through into improved consumer confidence, potentially encouraging an uptick in consumption at some point.
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Monetary policy committee, cautious in recent months, expected to respond with cut in interest rates
Graham Watson's insight:
And Heather Stewart reflects on the wider implications for the Monetary Policy Committee tomorrow...
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Price of turkey jumps as much as £15 compared with 2024, while chocolate has steepest mark-up
Graham Watson's insight:
Your annual reminder that Christmas dinner has become more expensive this year - with some aspects of it increasing in price by more than 70%. The highest rates of inflation are associated with chocolate, caused by D&S conditions in the market for cocoa. However, turkey is also significantly more expensive because of an outbreak of bird flu and rising costs.
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Bank of England says individuals borrowed extra £2.1bn in consumer credit in November
Graham Watson's insight:
The higher level of borrowing implies a higher level of consumption and might imply higher growth; however, I'd hold my breath if I were you. The combination of headwinds that have previously dulled consumer spending, won't disappear overnight.
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Prime minister gives clearest sign yet that government is seeking to further deepen Britain’s links with Brussels
Graham Watson's insight:
It seems as though we're moving towards closer relations with the EU, although this is unlikely to see us rejoining the customs union. Instead the Prime Minister is seeking to gain access to the Single Market.
I hope that my Year 13 economists are able to distinguish between the two...
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Unions and thinktank urge action to save sector hit by sky-high energy bills, cheap imports and underinvestment
Graham Watson's insight:
Another sector of British industry is calling for government intervention with the ceramics sector arguing that high energy costs, in particular, mean that it's not going to be globally competitive and that this risks thousands of jobs.
It's a difficult situation - if energy costs are going to stay high, then economic theory would suggest that the industry should be left to wither on the vine and the workers should be incentivised, and possibly supported, to retrain in jobs where will still have a competitive advantage.
However, the one thing that slightly irks me in the article is the notion that ceramics is "part of our national identity"; this isn't great economics. As a friend of mine always used to describe it, "the made by peasants to the sound of harps" theory.
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West Somerset Lagoon would harness renewable energy for UK’s AI boom – and create ‘iconic’ arc around Bristol Channel
Graham Watson's insight:
There's a proposal to build a massive tidal power station off the Somerset coast, designed to take advantage of the second-highest tidal range in the world.
If completed the station would have the capability to produce sufficient power for 2m homes, matching the capacity of nearby nuclear power station at Hinkley Point, and increasing the nation's energy security.
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Treasury announces 3 March date to prioritise ‘stability and certainty’ after criticism of buildup to November budget
Graham Watson's insight:
I'll just pop it in the diary then...
The policy environment for next year is already being established with the Chancellor announcing that the Spring Statement is going to be on 3 March, after criticism of the leaks prior to November's Budget.
If that's anything to go by, then I imagine that they'll start briefing, and leaking to the press, early in the New Year.
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ONS finds households’ savings ratio has dropped to lowest rate for more than a year across third quarter
Graham Watson's insight:
It seems that rising taxes, not least associated with the Budget, has adversely affected the UK's savings ratio, with it falling by 0.7% to 9.5% in Q3 of the financial year.
And much like economic growth, which was only 0.1% in the last quarter, the ongoing uncertainty, there's a sense that we're waiting for things to pick up next year.
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The idea of a customs union has gained traction, but agreeing a deal would be far from straightforward
Graham Watson's insight:
This Guardian article looks at the prospects of closer ties with the EU, in an attempt to start to undue the damage done by Brexit and re-establish closer relations between the UK and the EU.
Obviously, the majority of people think that this is going to be something likely to increase growth, but politically it remains a thorny issue.
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From better prospects for consumer spending to tentative signs of improving productivity, the doom and gloom of 2025 could be behind us
Graham Watson's insight:
Reasons to be cheerful: part one. Heather Stewart looks at why the economic prospects for 2026 are better than they've been this year. The fiscal situation is likely to be better than this year, consumer and business confidence seems to be picking up, monetary policy is softening and this might spur growth and there's even the merest suggestion that productivity's picking up.
Let's see. I'm not entirely convinced, although current data does appear to be trending in the right direction.
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Another reduction expected next year but monetary policy committee is deeply divided over inflation prospects
Graham Watson's insight:
The Guardian take on yesterday's interest rate cuts, notes that it's likely to be the last cut for a while, and that as the Bank itself has said, there's no guarantee that inflation has been entirely tackled, given the forecast high level of pay settlements.
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Supermarket sales fell for the fourth month in a row, while discounts did not lift Black Friday spending in November, figures suggest.
Graham Watson's insight:
However, despite yesterday's decision to lower interest rates, the initial data from the ONS for November's retail sales suggests that there's little immediate prospect of growth returning, with sales falling for a fourth month in a row.
That said, the GfK consumer confidence survey for this month does suggest that confidence is picking up, so it's not a straightforward picture leading into 2026.
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Analysts believe the Bank rate will fall from 4% to 3.75%, lowering the cost of borrowing.
Graham Watson's insight:
Today's big story - interest rates are likely to drop below 4% today - with the Bank of England likely to announce a fall to 3.75%, if markets are to be believed.
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The rate of inflation, which charts the rising cost of living, has slowed - driven partly by essentials.
Graham Watson's insight:
A look at the wider implications of today's inflation figures. It looks at the prospects of disinflation next year - where inflation is still positive but falling - and the implications of this for consumer confidence and hence consumer spending, and potentially economic growth.
And then there's the prospect of the Bank of England lowering interest rates tomorrow...
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And Heather Stewart reflects on the wider implications for the Monetary Policy Committee tomorrow...