S&P Global Ratings Upgrades UK GDP Growth Forecast Amid Resilient Consumer Spending

In its report released on Friday, S&P analysts highlighted the key role of hospitality and professional services in driving economic growth during the second quarter. The agency anticipates that UK GDP growth will average 1.4 percent from 2027 to 2029, contingent on the situation in the Middle East remaining "contained."

S&P has also affirmed the UK's long and short-term foreign and local currency sovereign credit ratings at AA, which is two notches below the highest investment grade. This rating helps facilitate access to capital markets and simplifies the borrowing process when necessary.

The stable outlook reflects analysts' beliefs that the UK economy has demonstrated resilience amid energy price shocks from the Middle East conflict, with growth appearing robust. However, S&P cautioned that this positive outlook is tempered by the UK’s constrained fiscal position, high public debt, and significant government spending, particularly related to debt servicing.

Additionally, S&P remarked on the policy direction under Prime Minister Andy Burnham, who assumed office in July and has faced scrutiny regarding economic management and fiscal discipline. His government has prioritized devolution, industrial renewal, social care, and strengthened ties with the EU while committing to fiscal prudence.

As of August, UK inflation was reported at 3.1 percent, the highest in five months, exceeding the Bank of England’s goal of 2 percent. This rise in inflation is associated with domestic price pressures and increased energy and transport costs, influenced by higher hydrocarbon prices. S&P anticipates the Bank of England will raise interest rates by 0.25 basis points at its upcoming November meeting, maintaining that level until the second half of 2027, as current conditions suggest a need for less aggressive tightening compared to the eurozone.

In a separate update, S&P noted that Egypt's economy grew at its fastest rate in three years, with a real GDP increase of 5.1 percent in fiscal 2026. This growth was driven by non-oil sectors such as manufacturing, wholesale and retail trade, information and communication technology, and tourism, marking an increase from a previous estimate of 4.7 percent. Household consumption was a significant contributor, supported by record remittances and easing inflation amid stable labor market conditions.

However, S&P predicts that Egypt's growth will slow to 4.5 percent in the fiscal year 2027 due to trade disruptions caused by the war, which are expected to impact logistics and import costs. The agency noted that persistent inflation and uncertainty would likely dampen consumption and investment.

In September, Egypt's inflation was recorded at 13.9 percent, driven primarily by high energy costs. S&P projects average inflation of 12.9 percent in fiscal 2027, which may prompt a policy adjustment from the Central Bank of Egypt, which has thus far refrained from increasing interest rates. S&P retained Egypt’s B sovereign credit rating, which is six levels below investment grade, maintaining a stable outlook while expressing optimism about continued structural reforms, including exchange rate liberalization.