The UK economy showed resilience in August as business activity expanded, though inflation pressures persisted, Barclays said in a note on Wednesday.
Flash data from S&P Global showed the composite Purchasing Managers' Index (PMI) at 52.5, up from 51.5 in July and beating the consensus estimate of 51.5. The services PMI climbed to 52.8, driven by stronger domestic demand, while manufacturing output slowed to 51.2 as cost pressures and geopolitical uncertainty weighed on activity.
Barclays maintained its third-quarter GDP growth forecast at 0.2% quarter-on-quarter, citing upward risks from a strong carryover from the second quarter and robust investment in ICT equipment. Retail sales, however, declined 0.5% month-on-month in July, aligning with expectations but reflecting a pullback after promotions were front-loaded into June. Over the three months to July, retail sales still rose 1.1%.
The labour market showed mixed signals. The unemployment rate held steady at 4.9% in June on a three-month rolling basis, matching Barclays' forecast but exceeding the Bank of England's July projection by 0.1 percentage point. Employment fell by 6,000 over the same period, with payrolls contracting by 13,000 in July and job vacancies declining by 4,000. Private sector wage growth slowed to 2.8% on a three-month trailing 12-month basis.
Inflation accelerated to 2.9% year-on-year in July, up 0.3 percentage points, driven by a 13% quarter-on-quarter increase in the Ofgem energy price cap. Core inflation remained unchanged at 2.6%. Barclays revised its 2027 average annual inflation forecast to 2.5% from 2.4%, citing a higher energy price trajectory, while keeping its 2026 forecast at 3.0%.
Public sector net borrowing tracked above Office for Budget Responsibility projections, with accumulated borrowing reaching £56.7 billion through July, about £2 billion above the OBR's March estimate. Barclays projected annual borrowing at £120.4 billion, £5 billion higher than the OBR's forecast.
Barclays noted it had no details on the agenda for next week's Jackson Hole symposium or which Bank of England Monetary Policy Committee members would attend, though it expected at least one to participate.
