Services-Led Growth Faces Sticky Price Risks in the UK Economy
Nomura's analysis of the UK economy highlights services-led growth as the primary driver of GDP expansion, but persistent price risks pose challenges for policymakers.
The firm notes that consumer spending on services such as hospitality and travel has remained resilient, supported by real wage gains and a stable labor market. This trend aligns with official data from the Office for National Statistics, which showed the services sector expanded by 0.4% in January 2025, the fastest pace in six months.
Despite positive growth, Nomura warns that price pressures in the services sector are not abating as quickly as hoped. Services inflation remains elevated at around 5.2% as of February 2025, well above the 2% target.
The persistence of services price pressures suggests that the Bank of England may need to maintain a restrictive stance for longer than previously anticipated. Nomura's economists argue that while the overall inflation rate has fallen to 3.0%, the underlying services component remains sticky.