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How well is the UK economy performing now and in the coming years - Coggle…
How well is the UK economy performing now and in the coming years
Trade
Imports
The UK economy currently runs a significant trade deficit, with imports exceeding exports.
In 2024, the overall trade deficit was £32 billion
The overall trade deficit increased to £14.4 billion in Q2 2025 (April-June) from £12.3 billion in Q1 2025.
For the coming years, forecasts predict a strong increase in imports due to global trade disruptions and a need for raw materials and finished goods, with real trade volumes expected to grow slowly compared to other G7 economies
Exports
The UK economy's trade exports are performing moderately well.
Service Exports.
Have performed strongly, with exports to the EU 19% above 2019 levels and to non-EU countries 23% higher in 2024, according to The House of Commons Library.
Goods Exports.
Remain weak, with goods exports to the EU 18% below 2019 levels in real terms in 2024, and exports to non-EU countries also 14% lower.
Overall Export Value.
The total value of UK exports grew by 1.9% in the 12 months to June 2025 compared to the previous year, but this reflects a 7.7% increase in services exports against a 5.4% decrease in goods exports, notes GOV.UK.
Future Outlook.
Continued Growth:
Forecasts from PwC UK suggest national output will grow around 1% this year and 1.7% next year, with faster growth in 2026, according to PwC UK.
Services vs. Goods:
The trend of services exports outperforming goods exports is expected to continue, with services now holding the highest share of exports on record, notes the Centre for European Reform (CER).
Government Focus:
The UK government has stated plans to publish a trade strategy to increase economic growth, which will likely focus on boosting trade performance.
Inflation
Key Drivers:
Recent increases have been driven by household energy bills and regulated prices, while services inflation remains elevated.
Headline Inflation:
Currently around 3.5% to 3.8%, a decrease from its 2022 peak, but still above the Bank of England's 2% target.
Core and Services Inflation:
These underlying measures have shown some persistence, although services inflation eased to 5.0% in July 2025 from its 2023 peak.
Inflation in the Coming Years.
Short To Medium Term.
Inflation is expected to rise temporarily, perhaps to 3.5% in Q3 2025, but then to fall steadily, nearing the 2% target in early 2027.
Elevated pay growth, though slowing, could contribute to a slower disinflation process.
Longer Term.
Improved global and domestic supply-side conditions are expected to support economic growth and help moderate inflation further.
The trajectory of inflation remains vulnerable to geopolitical risks and the extent to which easing pay pressures feed through to consumer prices.
Economic Context.
GDP Growth:
The UK economy grew in the first half of 2025, potentially making it one of the fastest-growing G7 economies in the period, though growth slowed in Q2 2025.
Productivity:
Improving productivity, supported by falling input prices and rebalancing production, is expected to contribute to stronger supply growth in the coming years.
Economic Growth GDP
Current Economic Performance (2025)
Q1 2025: The economy grew by 0.7% compared to Q4 2024, surpassing many forecasts.
Q2 2025: GDP grew by a smaller 0.2% in the first three months of the year, with a slowdown expected after the strong start.
Monthly Data: Monthly GDP saw growth in March but fell in April and May 2025.
Key Drivers.
Services Sector: This sector was a significant driver of growth in the first half of the year.
Wages: Strong wage growth has contributed to the current positive trend.
Economic Indicators
Productivity: Productivity across the economy has decreased, both compared to the previous quarter and the previous year.
Household Income: Real household disposable income per head decreased by 1.0% in Q1 2025, largely due to rising inflation.
Economic Outlook (Coming Years)
Short-Term Growth:
The OBR expects GDP growth to pick up from near zero in 2024 to 1.1% in 2025 and 2.0% in 2026.
Long-Term Growth:
After 2026, growth is forecast to slow to around 1.5%, remaining slightly below the estimated long-term potential of the economy.
Factors:
Temporary Boost: The current growth is supported by the easing of monetary policy and a fiscal boost in the latest budget, which are temporary effects.
Fading Boost: As these effects fade, GDP growth is expected to weaken in the later years of the forecast.
Unemployment
Current Performance (April-June 2025)
Current Performance (April-June 2025)
Unemployment Rate: The unemployment rate for people aged 16 and over was estimated at 4.7%.
Number of Unemployed: The number of unemployed people increased by about 206,000 over the past year.
Employment Rate: The employment rate for people aged 16-64 was 75.3%.
Vacancies: The number of job vacancies decreased significantly, with a drop of 44,000 on the quarter, and is below pre-pandemic levels.
Economic Inactivity: The economic inactivity rate decreased to 21.0% in the latest quarter.
Trends and Outlook
Rising Unemployment:
The unemployment rate has been rising since mid-2022 after a period of decline.
Declining Vacancies:
Job vacancy numbers have been on a downward trend for 37 consecutive periods, with decreases across most industry sectors.
Real Wage Growth:
Average wages have continued to grow in real (inflation-adjusted) terms, which is a positive sign for households.
Reduced Recruitment:
Some firms are not recruiting new workers or replacing those who have left.