RSM UK Real Economy Economic Indicators
Our three economic indicators focus on the data that matters to middle market businesses: financial conditions, credit availability and growth in the real economy.
UK economy pulls back from Q1 gains, but positive signs into Q3
Growth in Q2 took a backward step from Q1’s outsized pre-April taxes and tariffs gain. But new data reflecting the latest credit conditions and financial markets activity highlights how firms are laying firm foundations for growth as we head into Q3.
Our second Quarterly Economic Outlook of 2025 readied us for the recent months’ GDP growth rollercoaster ride. Ongoing international uncertainty, a surely loosening but not collapsing labour market, higher government spending and an interest rate reduction all impacted the size of the UK economy.
The RSM UK Real Economy Barometer, which is based on the latest official GDP data, shows April’s 0.3% and May’s 0.2% contractions in the real economy eroding Q1’s 1.0% overall gain. Nevertheless, underlying momentum in the real economy – especially as policymakers strike trade deals with the US – remains on track for 1.2% expansion overall this year.
Indeed, The RSM UK Credit Impulse – a forward-looking indicator of growth – saw June’s single-month borrowing measure rise to 0.8% of UK GDP. New credit flows to businesses increased to 0.4% of GDP, which is the highest level since the last Autumn Budget. Household new borrowing matched this, rebounding to 0.4%.
However, a fall in financial exchange markets, weaker sterling against the euro, and flat money and equity markets meant The RSM UK Financial Conditions Index (FCI) dropped marginally to a still-accommodating +1.1 from +1.2 overall. Bond markets were the bright spot, with conditions improving here from +0.5 from +0.3.
Our next set of indicators, published in August, will reflect how UK businesses, consumers and financial markets are navigating 2025 as government spending starts to flow through the real economy and the latest 90-day US tariff pause expires.
Until then, sign up to receive our regular economic updates and read RSM UK Chief Economist Tom Pugh’s commentary of key datapoints, weekly Economic Voice briefings and next UK Quarterly Economic Outlook.
Last updated: 1 August 2025
The latest data offers clear signs of some economic recovery, with new borrowing rising to 0.8% of GDP. Crucially, borrowing by firms rose to 0.4% of GDP in June from 0.3% in May. This is the highest since October 2024. Household new borrowing matched this with 0.4% over the same period. However, despite June’s positive monthly data, the tail-end of Q1’s mortgage borrowing surge means the latest three-month average fell to 0.4% of GDP. This is down from 0.7% in May, but consistent with our view that growth slowed in Q2. Indeed, the household component of the three-month measure for our significantly consumer-led economy fell to 0.1% of GDP from 0.6% in May. Meanwhile borrowing by firms (non-banking) rose to 0.3% of GDP.
Credit impulse explained
Measuring the UK’s economic momentum
The RSM Credit Impulse is a real-time snapshot of new credit flowing into the UK’s private sector.
As a gauge of future economic momentum, it tracks both household and business borrowing, offering middle-market businesses insight into the direction of future growth.
How to use The RSM Credit Impulse
The RSM Credit Impulse gives you the ability to anticipate changes in the economic landscape.
It outlines capital investment and consumer spending intentions as a proportion of GDP.
- Positive values are a sign of good credit flows, investment and consumer confidence.
- Negative values suggest a tightening credit environment and caution in spending and investment.
How we calculate The RSM Credit Impulse indicator
The RSM Credit Impulse uses data from the Bank of England for lending flows and the ONS for nominal GDP. The change in lending flows is then calculated and divided by quarterly GDP to give a %.
Last updated: 24 June 2025
GDP figures stayed in negative territory for the second month in a row. This suggests the rollback to trend is still underway after March’s pre-tariff and tax-rise boom, which added 1.0% q/q growth. May’s real economy output contracted 0.2% compared to the -0.1% in official GDP data. Consumer-facing sectors in particular were hardest hit and down 1.2% due to a 2.7% drop in retail trade. Accommodation and food services were the outlier. These grew at their fastest pace since May 2022 on a 3m/3m basis. On the production side of the economy, manufacturing fell by 1.0%, driven by weakness in pharmaceuticals and transport manufacturing. Construction also fell by 0.6% after three consecutive months of strong growth. However, both the real economy and official GDP remain broadly on track to meet our expectation of a 1.2% expansion this year.
Real Economy Barometer explained
Real Economy Barometer explained
Providing clarity for business leaders operating in the UK’s real economy
The Real Economy Barometer more accurately describes the economic landscape as experienced by middle-market businesses.
Focusing on the UK’s goods- and service-producing sectors, it filters out certain public-sector components from official GDP data to provide business leaders with actionable insights.
How to use The Real Economy Barometer
We can better understand where growth is coming from, the factors influencing this and what it takes in the coming months to meet growth forecasts by comparing data for real economy output with official UK GDP.
Every month, following the release of official UK GDP data, our economists calculate how the real economy – accounting for 79% of the UK economy – is performing against the:
- UK economy’s total output
- our growth forecast (currently 1.2%).
Negative values show shrinkage in the size of the economy and positive values show growth.
How we calculate The Real Economy Barometer indicator
The Real Economy Barometer strips out the impact of imputed rents, public administration, education, human health, residential care, social work, libraries and museums, and social clubs from official GDP data.
Last updated: 1 August 2025
Financial conditions have tightened marginally to +1.1 from +1.2 according to the latest data. Yet the measure remains firmly in accommodative territory. It means relative market stability, healthy credit availability and consumer spending environments. The main reason for the FCI’s slight drop was the foreign exchange markets. Both a weaker pound against the euro and a slight increase in volatility dampened financial conditions modestly, shifting the measure by -0.2 to 0. Equity markets also remained flat at +0.8. Money markets did fall slightly to +1.3 from +1.4, but again remain overwhelmingly positive. The big recovery was in the bond market, where conditions improved to +0.5 from +0.3. Falling corporate yield premiums and lower yields on short-term government debt in anticipation of interest rate cuts fuelled the improvement here.
Financial Conditions Index explained
Financial Conditions Index explained
A real-time gauge of financial stress
The RSM Financial Conditions Index (FCI) is a powerful metric that monitors the level of financial stress in the UK’s money, bond, equity and foreign exchange markets.
It offers near real-time insight into financial market movements, helping business leaders to gauge how shifts might impact the broader economy and its stability.
How to use The Financial Conditions Index
The FCI shows exactly how far current financial conditions diverge from historical norms.
This means we can understand if current financial conditions are supportive of business growth, investment and consumer spending, or not.
- Positive values indicate more accommodating financial conditions and easier credit availability – prerequisites for economic expansion.
- Negative values indicate tighter financial conditions, less credit availability and higher costs – dampeners for investment, confidence and growth.
How we calculate The Financial Conditions Index indicator
Items included in the composite RSM UK Financial Conditions Index are normalised by subtracting the mean and dividing by the standard deviation for each series.
The FCI, as a Z-Score, indicates the number of standard deviations by which current financial conditions deviate from normal levels.
Explore our economic commentary
Our economic commentary offers bespoke insights into the UK’s real economy, providing analysis and forecasts to help you navigate the current economic landscape.
