Core Theme: The ECB’s Shift – From Fighting Inflation to Fighting Stagnation
- Inflation is no longer a concern: HICP inflation is forecast to fall below the ECB’s 2% target by spring 2025.
- Weak growth is now the priority: The ECB is expected to cut rates to below neutral, with 125bp in easing, taking the deposit rate to 1.75% by September 2025.
Growth Outlook: Anemic Recovery, Structural Drags
- 2024 GDP growth: 0.8%
- 2025 GDP growth (forecast): 1.1%
- 2026 GDP growth (forecast): 1.3%
Key Constraints
- Weak consumer recovery: Real wage growth is fading; household savings have been drawn down.
- Diminished pricing power: Firms are unable to pass costs to consumers, pressuring margins and hiring.
- US tariffs drag: Trump-era tariffs (expected 10% blanket) will erode Europe’s already-struggling manufacturing base, shaving off 0.3pp from euro area GDP over 2025–26.
- German structural issues:
- Overexposed to China and global manufacturing
- Demographic decline and rising dependency ratios
- Inability to rebound to pre-COVID growth trajectory
Policy Outlook
- ECB Rate Path:
- Cuts of 25bp per meeting in H1 2025
- Final cut in September 2025
- Terminal rate: 1.75%
- Fiscal Policy:
- Germany: Possible loosening in Q4 2025 post-early elections
- France: Less fiscal drag due to political instability-related delays
Risks to Watch
- Trump tariffs → Manufacturing & export squeeze
- Weak wage momentum → Faltering consumer recovery
- Rising unemployment → As firms absorb costs, hire less
🇬🇧 UK Macro Outlook 2025 – Inflation Normalizing, Growth Crawling
Key Themes
- Growth outlook subdued:
- Below-trend GDP growth of 0.2–0.3% q-o-q in early 2025, reaching 0.4% by late 2026.
- Driven by fragile consumer spending, weak trade performance, and low business confidence.
- Consumer drag persists:
- Slowing nominal wage growth
- Modest recovery in confidence
- Cash savings buffer largely eroded
- Headline inflation rising temporarily from base effects
Policy and Inflation Outlook
- Inflation path:
- Q1 2025: CPI peak at ~2.8% (base effects, services)
- End-2025: ~2.5%
- H1 2026: CPI returns to 2%
- Bank of England Rate Path:
- Quarterly 25bp cuts per MPR
- Terminal rate of 3.5% reached in early 2026
- Labor Market:
- Unemployment rises slightly from 4.3% to ~4.5%
- Market is loosening, not loose — still relatively tight
Comparison: Nomfins vs BoE/Consensus
| Metric | Nomfins View | BoE / Consensus |
|---|---|---|
| GDP Growth (2025) | Below consensus | Higher, assumes stronger fiscal boost |
| Trump Tariff Impact | Included | Not included in BoE forecasts |
| Inflation Path | Higher near-term, easing by H2 2026 | Generally aligned |
Strategic Implications – Europe & UK in 2025
| Theme | Euro Area | UK |
|---|---|---|
| Monetary Policy | Cutting below neutral (to 1.75%) | Gradual cuts to 3.5% |
| Growth Driver | Not consumer-led | Tepid consumption recovery |
| Inflation | Below target by Spring 2025 | Temporarily elevated, moderating into 2026 |
| US Tariff Impact | Manufacturing, esp. Germany hit hard | Negative trade shock |
| Labor Market | Margin pressure → potential job losses | Loosening but stable |
| Structural Risks | German stagnation, weak investment | Weak trade and wage momentum |
