Nomura: UK Services-Led Growth Faces Persistent Price Pressures
Nomura's analysis of the UK economy reveals that services-led growth is driving GDP expansion, but persistent price pressures remain a concern for the Bank of England.
The services sector has been the primary contributor to recent economic growth, offsetting weakness in manufacturing and construction. Consumer spending on services such as hospitality, travel, and financial services has remained resilient, supported by real wage gains and a stable labor market.
Services inflation remains elevated at around 5.2% as of February 2025, well above the 2% target, due to strong wage growth in labor-intensive services industries and the pass-through of higher energy costs.
Nomura's economists argue that while the overall inflation rate has fallen to 3.0%, the underlying services component remains sticky, suggesting that the Bank of England may need to maintain a restrictive stance for longer than previously anticipated.