Economy in Brief: 2025

U.K. inflation has moderated in November, posting a 0.1% drop on the HICP, a 0.1% gain in the CPI-H headline measure as well as a 0.1% gain in the CPI-H core (excluding energy, food, alcohol, and tobacco). The sequential trend in core inflation points lower and is eroding but continues to run over the 2% mark set as a target by the Bank of England for overall inflation (over 12 months). The headline is excessive as well but also eroding.

Sequentially the CPI-H gains 3.5% over 12 months, slows to a 2.8% annual rate over six months and then dips to 1.4% annual rate over three months. The CPI-H core rises by 3.6% over 12 months, ticks down to a 3.0% pace over six months, and then runs at a 2.4% annualized pace over three months.

The trend for the CPI core, and for the headline, both are quite good and would be completely consistent with the Bank of England cutting rates, a move that is widely expected – although the 12-month pace for each is excessive.

Not only is inflation showing signs of falling into the Bank of England's target zone, but the economy has been weak although the unemployment rate currently is only hovering around the 4% mark. Still, recent economic data have been weak, and the recent monthly GDP report posted a negative reading, further unsettling the outlook. The October monthly GDP change was estimated at -0.1% while the year-over-year increase in GDP in October produced a gain of just 1.1%. These metrics have put the U.K. economy on recession watch at a time when there has been a sharp revision in the budget process that will be much more constrictive. A sharp pullback in the manufacturing of motor vehicles is blamed for the sudden weakness in GDP in October. The three-month drop in GDP is the first such drop since December 2023.

Meanwhile, the headline and the core inflation statistics are progressing. The table calculates breadth statistics on how widespread inflation acceleration has been and we see that it has not been prevalent (over 50%) in September or November, although breadth did touch the 58% mark in October. Sequentially, inflation acceleration has been tamed: over 12 months (when it is neutral), six months, and three months. Over 12 months, inflation accelerated in only 50% of the categories. And inflation according to the CPI headline and in the core over six months continues to show deceleration to accompany narrowing breadth - only 8.3%. That reading indicates that there was more inflation deceleration than acceleration by a wide margin over six months. At 50%, inflation acceleration and deceleration forces are balanced. Readings below 50% indicate relatively more deceleration, and that is now the more common condition. Inflation acceleration is extremely rare across categories over six months and three months.

The Standard & Poor’s PMI data seem to have taken a fork in the road in December as the previous strong trend toward improving has been reversed in December. Out of 24 sector changes across eight different countries (or economic regions), there are only 6 sectors that show improvement month-to-month in December. This is a sharp contrast to November when 10 sectors showed improvement and to October when 20 of 24 sectors showed improvement. The worm has turned, but is it a lasting turn or not?

The sequential data look at changes in the hard data (that's data through November) over three months, six months, and 12 months. They show a strongly weighted preponderance of sectors that are better, getting stronger, rather than getting weaker. Over three months, 9 of 24 sector readings get weaker compared to six-months. Over six months, every single sector gets stronger compared to 12-months. Over 12 months, 19 sectors get stronger compared to 12-months ago. Monthly data show that this impressive string of improving sectors shows that progress began to slow down in November and kicked into reverse in December.

As of December, the United Kingdom, which is a struggling economy, is the only reporting unit to show a stronger composite, stronger manufacturing, and stronger services. Apart from the U.K.’s strength, there's stronger manufacturing month-to-month reported in France, Japan, and Australia. And that's the end of month-to-month improvements in December. In November, there is a triple improvement in Japan with manufacturing, services, and the composite strengthening month-to-month. There are isolated sector improvements in manufacturing in Australia and in the U.K. There were also improvements for services in India as well as in services and in the composite index for France and in the European monetary union. Still, these are only 10 of 24 sectors in November.

The previous strong trend movement higher has left most of the readings as of December above their medians on data back to January 2021. Among the 24 headline and sector calculations, only six of them show standings below their 50th percentile since January 2021, which puts them below their historic median for that period. The service sector is below the 50% mark in the United Kingdom, Japan, and the United States, while the overall composite is below the 50% mark in the U.S. and in India, with India showing a below median manufacturing rating as well and the U.S. showing below 50% in services. The weaker U.S. data is a new and interesting feature with U.S. job data for November just reported and looking a bit stronger, despite a rise in the unemployment rate. The December S&P survey data, on the other hand, hint that such an improving trend may not last.