Morgan Stanley Forecasts UK Economic Growth

(Reuters) – Morgan Stanley (NYSE:MS) forecasted the UK’s economic growth to be less than 1% in 2025, following similar estimates from Goldman Sachs and J.P. Morgan. This projection reflects a slowdown in Britain’s economy and signs of weakness in the labor market.

The brokerage anticipates the UK’s GDP growth at 0.9% for 2025, down from a previous forecast of 1.3%.

In contrast, the Bank of England (BoE) projects a growth of 1.5%, partly due to a temporary boost from increased public spending announced by Finance Minister Rachel Reeves in October.

The UK’s economy showed no growth in the third quarter of last year and is expected to maintain this trend in the last quarter, affected by budget uncertainties seen in November’s business climate.

A recent survey revealed slight growth among businesses at the start of 2025, but declines in employment and optimism continue, alongside rising price pressures.

The BoE began raising interest rates in December 2021, holding the main rate at a 16-year high of 5.25% until last July. Since then, rates have been cut twice; the BoE remains cautious about further reductions due to ongoing inflation.

Morgan Stanley foresees five BoE rate cuts this year—February, May, June, August, and November—bringing the policy rate down to 3.5% by the end of 2025, from the current 4.75%.

Traders are anticipating two to three quarter-point cuts from the BoE in 2025, with an 85% chance of a cut to 4.5% by February 6.