Weekly economic review for the week ended August 8, 2025

The Institute for Supply Management (ISM) reported last Tuesday that US service sector growth slowed modestly in July. The services Purchasing Managers’ Index (PMI) dipped to 50.1 in July from 50.8 in June, defying expectations for a rise to 51.5. While still signalling expansion, the decline was driven by weaker business activity, as new orders and employment index slipped further.

Meanwhile, the prices index surged to 69.9 in July from 67.5 in June, reaching its highest level since hitting 70.7 in October 2022.

Steve Miller, chair of the ISM Services Business Survey Committee, said that: “The Employment Index’s continued contraction and faster expansion of the Prices Index are worrisome developments.”

Economists also point to mounting pressures from President Donald Trump’s escalating tariffs. Before the self-imposed deadline of August 1, President Trump issued a wave of notices to trading partners about increased importation taxes, further straining US businesses.

Meanwhile, the Bank of England (BoE) lowered its benchmark interest rate, which took the rate to the lowest levels since early 2023. The Monetary Policy Committee voted 5-4 to cut interest rates by 25 basis points to 4%. The decision reflects ongoing domestic and geopolitical pressures on the economy. Despite inflation expected to peak at 4% in September, the bank projects inflation will return towards its 2% target.

Governor Andrew Bailey emphasised a “gradual and careful” approach towards future rate cuts; balancing inflation concerns with rising job losses.

The BoE also revised its GDP forecast for year to 1.25%, up from 1%, while one-year forward Consumer Price Index (CPI) projections have increased to 2.7% from 2.4%.

Finally, euro area retail sales rose in 0.3% in June, recovering from May’s decline. Data from Eurostat suggest that household spending likely supported economic growth in the second quarter. The increase was slightly below the 0.4% forecasted, with food, drink and tobacco sales up 0.2%, and non-food product sales gained 0.6% month-on-month.

Annually, retail sales growth accelerated to 3.1% from 1.9% in May, driven by a 4.3% increase in non-food product sales and a 4% jump in car fuel purchases. Economists had expected an annual growth of 2.6%. Despite concerns over global trade tensions and a stronger euro, recent data suggest that eurozone economy is holding steady.

ING economist Peter Vanden Houte noted that “with external headwinds such as tariffs and a stronger euro likely to weigh on exports, domestic demand is becoming increasingly vital for sustaining growth”.

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