Central Banks Confront Conflicting Signals on Inflation and Growth

NatWest’s Chief Economist Commentary (1 September 2025) highlights the complex trade-offs facing policymakers in the UK and US as inflation and labour markets diverge.

• UK: Inflation persistence worries BoE policymakers, with wage dynamics and living wage increases keeping upward pressure; unemployment has edged up to 4.7% but pay growth remains unexpectedly strong.

• Housing: UK and US house prices softened, with affordability stretched in Britain and 30-year US mortgage rates near 7% dampening demand.

• US: Consumer spending rose 0.3% in July, but confidence continues to weaken as tariffs threaten future price pressures.

Will central banks sustain restrictive policy or pivot toward easing? The full report provides scenario analysis and risks.