Berenberg Sees A Necessary U.K. GDP Slowdown to Tackle Inflation

12:29 PM EDT, 10/16/2025 (MT Newswires) -- Berenberg said it thinks that gross domestic product growth needs to slow for the United Kingdom to cure its inflation problem.

Given the repeated pattern in U.K. GDP of strong gains in H1 followed by a slowdown in H2, the bank uses the annual growth rate as the most reliable gauge of underlying economic activity.

The slowdown in the annual rate from 1.5% year over year in July to 1.3% in August suggests that demand is beginning to lose some steam. Berenberg expects growth to decline further over the winter, to a trough of 0.8% year over year in H1 2026.

A slowdown in wage growth while inflation is elevated will squeeze growth in real household income. Meanwhile, the fiscal deficit should finally start to narrow, stated the bank.

The Bank of England must let the economy cool enough for inflation to weaken onto a downward path to 2% before cutting the bank rate again. Berenberg predicts the BoE to hold off until February 2026.

The U.K. economy failed to grow between June and August, suggesting the slowdown that Berenberg forecast is beginning to materialize. While Thursday's data showed that U.K. output rose by 0.1% month over month in August, in line with the consensus, growth in July was revised down from 0.0% month over month to a 0.1% contraction.

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