Economic Update - Week 33, 2025

Written By Jonathan Brown

Global Macro Outlook

  • The IMF projects global growth at 3.0% in 2025, rising to 3.1% in 2026, slightly above earlier forecasts, reflecting easing trade tensions and fiscal support in key economies.

  • Uncertainties from trade barriers, geopolitical tensions, and sluggish investment continue to pose downside risks.

  • Global trade dynamics are shifting as firms now prioritise resilience, regulatory compliance, and diversified supply chains, especially amid evolving U.S. - China ties.

  • Equities faced some pressure globally yesterday, while developments around U.S. - China tariffs remain a key focus for market watchers.

United Kingdom Snapshot

  • GDP forecasts remain modest. The IMF and OECD estimate 1.2-1.3% growth in 2025, easing to around 1.0-1.4% in 2026.

  • The UK economy shrank by 0.3% in April and 0.1% in May 2025, raising concerns about Q2 performances and increasing pressure for stimulus measures.

  • The employment landscape is cooling:

    • 4.7% unemployment—the highest in four years.

    • 164,000 jobs lost since Labour took office, including 8,000 more in July.

    • Wage growth remains elevated (around 4.8–5%), creating a dilemma for the Bank of England in setting interest rates.

  • The Bank of England reduced interest rates from 4.25% to 4.00% on August 4th, with the hope that SME’s will engage investment they’d held off, however there remains “uncertainty” about future interest rate reductions.

    Inflation is expected to rise, peaking near 4% in September, sustaining pressure on households and delaying further rate cuts despite recent easing.

  • With a projected £40 billion deficit, Labour’s Chancellor is signaling possible tax adjustments despite earlier pledges—a crucial backdrop ahead of the autumn budget.

Northen Real Estate

UK Wide

  • UK real estate fundamentals remain solid, with structural themes—especially in industrial and multi-sector investment—continuing to drive returns. While income yields and hands-on asset management are key, overall capital growth may take longer to materialise amid macroeconomic caution

Industrial

  • The industrial vacancy rate has improved, dipping below the level recorded a year ago—signaling strengthening demand.

  • Yorkshire take-up surged significantly in the past year—transaction volumes reached 3.1 million sq ft across 14 deals, marking a 48% increase year-on-year.

  • In the East Midlands, around 26% of pipeline industrial space (246,000 sq ft) was under construction heading into 2025, compared to just 8% (93,000 sq ft) in the West Midlands.

Office

  • Occupancy has rebounded with regional office occupancy (Manchester to Glasgow) has climbed to 75.3%, exceeding pre-pandemic levels of 70%, signalling employee return and increased usage.

  • In Manchester, office availability fell by 6% in Q2 2025, with 2.9 million sq ft still available—a tightening implying rising demand.

BTR

  • UK BTR investment reached approximately £1.9 billion in H1 2025, with nearly half (45%) attributed to single-family housing deals.

  • Since 2016, around £34 billion has been invested in the UK BTR sector (via acquisitions and funding). Despite market turbulence around rising costs, the segment remains a go-to safe asset class for investors.

Jonathan Brown
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UK Government Borrowing higher than expected: What that means for real estate