LONDON — Some investors are expressing a growing optimism about the U.K.’s economic outlook despite the country’s long-standing structural weaknesses, as its neighbors in the European Union deepen their trade dispute with the United States.
That upbeat tone wasn’t reflected in the messaging of the Bank of England, as it held interest rates steady last Thursday, citing increased geopolitical uncertainty and indicators of financial market volatility. However, U.K. economic growth — tepid at best for the last three years — is finally expected to pick up somewhat in 2025, with Bank of America analysts forecasting a 1.4% expansion.
Inflation is still expected to cool back near-target in the months ahead, the labor market is loosening but remains robust, and the U.K. government has a determined focus — at times controversially — to support growth and reduce the national deficit.
Sanjay Raja, chief U.K. economist at Deutsche Bank, said that, on a recent client trip to the U.S. he noted a “budding sense of optimism” around the U.K. not seen in some time.
Key factors included a pivot toward deregulation and focus on more capital spending, the potential for a strong trade deal with the EU in the coming year, and an expectation the the U.K. will “stay in the US’ ‘good books’ as a trade war kicks off,” Raja said in a note earlier this month.
U.S. President Donald Trump has expressed a willingness to spare the U.K. from blanket or targeted tariffs, with expectations bolstered after U.K. Prime Minister Keir Starmer conducted a friendly trip to the White House in February.