Leading Indicators | Signs of resilience, scope for caution

We still expect the BoE to maintain a holding bias over further rate increases

The BoE has maintained the  base rate at 3.75% through the first half of 2026, reflecting softer labour market conditions and easing underlying inflation pressures. While energy prices remain the key upside risk, tentative progress towards reopening the Strait of Hormuz could help alleviate near-term inflation concerns. Although markets continue to price in one further 25bp increase, the BoE's latest forecasts suggest scope for additional tightening remains limited.

UK regions see 2026 GVA and employment outlooks upgraded - a sign of resilience?

UK regional growth prospects have improved following stronger-than-expected economic data in H1, suggesting regional economies have been more resilient to the recent energy price shock than initially feared. Oxford Economics now forecasts UK GVA growth of 1.2% in 2026 (+30bps), with London and Northern Ireland expected to outperform due to stronger labour markets and greater exposure to growth sectors. Manufacturing-led regions, however, continue to face headwinds from elevated energy costs and weaker industrial demand.

Business activity rebounds heading into Q3, but a softer H2 remains likely

July's PMI data point to a rebound in activity heading into Q3, with the Composite PMI rising to 52.2 and the Services PMI returning to expansionary territory at 52.1, up from 48.8 in June. However, the outlook for H2 remains more challenging, with inflation likely having passed its low point and Ofgem's 13% increase in the energy price cap set to add renewed upward pressure. Against this backdrop, a gradual moderation in growth over the coming months appears the more likely scenario.