S&P lifts UK GDP growth view on resilient consumer spending and services sector

S&P Global Ratings has raised its forecast for the UK's GDP growth, recognizing the "reasonably resilient" consumer spending and services sector that have buffered the economy from the conflict in the Middle East. The agency now anticipates the UK's real gross domestic product to expand by 1.3%, up from an earlier projection of 1.1%. Hospitality and professional services, in particular, have been instrumental in driving economic growth during the second quarter.

Looking ahead, analysts at S&P predict the UK's GDP growth to average 1.4% from 2027 to 2029, contingent on the Middle East situation being "contained". The company has also retained the UK's sovereign credit ratings at AA, two notches below the top prime grade, making it easier for the country to access capital markets and raise funds if necessary.

The stable outlook reflects the analysts' belief that the UK economy has proven resilient to the shockwaves caused by the Middle East conflict, with growth remaining "reasonably robust". However, the agency also points out the risks stemming from the UK's constrained fiscal position, elevated public debt levels, and high government spending, including debt servicing.

UK inflation stood at 3.1% in August, the highest in five months, significantly above the Bank of England's 2% threshold. This surge was a result of domestic price pressures and energy and transport costs, primarily driven by higher hydrocarbon costs. S&P expects the Bank of England to increase interest rates by 0.25 basis points at its November meeting, a move that may continue until the second half of 2027.

This assessment is based on the current policy rate level of 3.75% and subdued labor market conditions, suggesting that the UK may need less additional policy tightening compared to the eurozone.

Meanwhile, Egypt's economy has accelerated at its fastest pace in three years, with real GDP jumping by 5.1% in fiscal 2026. This growth was primarily fueled by non-oil sectors such as manufacturing, wholesale and retail trade, information and communication technology, and tourism. A notable factor was the record remittances, easing inflation, and stable labor market conditions.

However, S&P cautions that this growth is projected to ease to 4.5% in the fiscal year 2027 due to shipping disruptions related to the war, which will further pressure trade, logistics, and import prices. Consumption and investment activities are also expected to soften amid persistent uncertainty and rising inflation. Higher energy costs have kept inflation elevated at 13.9% in September, according to Capmas data, and S&P anticipates a continued average of 12.9% in fiscal 2027.

This could prompt a policy reversal from the Central Bank of Egypt, which has so far resisted increasing interest rates.

Despite these challenges, S&P maintains its B sovereign credit rating for Egypt, which is six levels below the investment grade, with a stable outlook. The agency believes that the ongoing implementation of the reform agenda, including the commitment to exchange rate liberalization, will enhance the country's structural economic competitiveness in the medium term.