G7 divergence, UK inflation
Major G7 economies are splitting into winners and laggards — updated GDP comparisons show some countries sustaining modest growth while others are held back by energy shocks and weak consumer confidence. Inflation remains notably stubborn in the UK, with both CPI and RPI exerting upward pressure and complicating central-bank policy choices. (commonslibrary.parliament.uk) (commonslibrary.parliament.uk)
Q4 2025 GDP results show a clear split: UK +0.1% quarter‑on‑quarter (ONS), US +0.7% annualised in the BEA second estimate, Germany +0.3% q/q (Destatis), France +0.2% q/q (INSEE), Italy +0.3% q/q (ISTAT), Japan roughly +0.1% q/q in preliminary reports (Cabinet Office), and Canada recorded a small quarterly contraction in Q4 2025 (Statistics Canada). ( ) US outperformance in Q4 was driven by stronger consumer spending and business investment, according to the BEA’s second‑estimate breakdown of contributors to growth. (bea.gov) Growth in Germany and Italy reflected positive contributions from household spending and construction in national accounts, while the UK’s marginal Q4 expansion was concentrated in services with manufacturing and construction remaining weak per ONS analysis. ( ) Energy‑price shocks and sliding consumer sentiment are identified as recent brakes: the Bank of England singled out Middle East conflict‑related spikes in energy and commodity prices, and GfK’s consumer confidence index fell to −21 in March 2026 (an 11‑month low), signalling weaker household spending intentions. ( ) UK inflation remains elevated on headline and alternative measures: ONS reported CPI at 3.0% in the 12 months to February 2026 (core CPI ~3.2%), while the Retail Prices Index ran at about 3.6% year‑on‑year in February 2026 — a gap that keeps indexed pay and contract costs under pressure. ( ) Policy tension is concrete: the MPC voted to keep Bank Rate at 3.75% on 18 March 2026 and explicitly cited near‑term upside inflation risks from higher energy prices, yet the Bank’s February Monetary Policy Report projected CPI falling to about 2.1% in Q2 2026 — a forecast that underpins the current cautious pause ahead of the next meeting due at the end of April. ( )
