UK Growth Fades Amid Intensifying Inflation Pressures

The UK economy is facing a slowdown in growth and intensifying inflation pressures, according to Deutsche Bank's analysis. The bank's economists point to weakening consumer demand and subdued business investment as key drags on growth.

The latest data from the Office for National Statistics shows quarterly GDP growth of just 0.2% in the second quarter, down from 0.7% in the first quarter. This slowdown in growth is partly due to lingering effects of higher interest rates.

Inflation, meanwhile, has proven stickier than anticipated, with the Consumer Prices Index (CPI) rising by 3.1% in August, up from 2.9% in July. The main drivers of inflation are rising energy costs and service-sector price pressures.

The Bank of England faces a dilemma: it may need to raise interest rates further to combat inflation, but that could slow growth even more. Markets currently see a 40% chance of a rate cut by early 2025, but Deutsche Bank suggests caution.