S&P Global Ratings has upgraded its growth outlook for the UK, citing “reasonably resilient” consumer spending and services that have helped shield the economy from the conflict in the Middle East.
Real gross domestic product in Europe's second-biggest economy is now expected to climb by 1.3 per cent, from a previous lowered prediction of 1.1 per cent, the New York-based agency said on Friday.
S&P analysts noted that hospitality and professional services underpinned economic growth in the second quarter. GDP growth is seen to average 1.4 per cent from 2027 to 2029, expecting the economy to improve if the situation in the Middle East is “contained”.
The agency also maintained the UK's long and short-term foreign and local currency sovereign credit ratings at AA, two notches below the top prime grade. An investment grade makes it easier to access capital markets and raise funding when the need to borrow arises.
“The stable outlook reflects our view that the UK economy has remained, and will remain, resilient in the face of the energy shock emanating from the Middle East conflict, with growth remaining reasonably robust,” analysts at S&P wrote.
“This is balanced against risks from the UK's constrained fiscal position, elevated public debt levels, and high government spending, including on debt servicing.”
S&P also noted the UK's policy direction under Andy Burnham, the UK's sixth prime minister in the past decade. The start of his tenure in July was marked by questions about how he would handle the economy, including how to ensure fiscal discipline.
Mr Burnham's government has “focused on devolution, industrial renewal, social care and closer ties with the EU, with simultaneous pledges to respect fiscal prudence”, S&P said.
UK inflation was pegged at 3.1 per cent in August, the highest in five months, according to the Office of National Statistics, and well above the Bank of England's 2 per cent threshold. S&P said this has risen on domestic price pressures and energy and transport costs, underpinned by higher hydrocarbon costs.
The agency expects the Bank of England to raise interest rates by 0.25 basis points at its November meeting after maintaining them last month, “then hold that level until the second half of 2027 because the current policy rate level of 3.75 per cent and soft labour market conditions suggest the UK may require less additional policy tightening than the eurozone”.
Egypt's growth accelerates
Meanwhile, S&P said Egypt's economy accelerated at its fastest pace in three years, but cautioned the North African nation remains vulnerable to shocks stemming from the conflicts in the Middle East.
Real GDP in the Arab world's most populous nation jumped by 5.1 per cent in fiscal 2026, buoyed by non-oil sectors including manufacturing, wholesale and retail trade, information and communication technology, and tourism, it said in a separate report. That compares to a 4.7 per cent reading in its previous estimate.
Household consumption emerged as a primary factor, boosted by record remittances, easing inflation and stable labour market conditions, it added.
S&P, however, projects this growth to ease to 4.5 per cent in the fiscal year 2027, as shipping disruptions related to the war are expected to further pressure trade, logistics and import prices. Consumption and investment activities are also predicted to soften amid persistent uncertainty and rising inflation.
Higher energy costs kept inflation elevated at 13.9 per cent in September, according to Capmas data. S&P expects inflation to average 12.9 per cent in fiscal 2027. This might result in a policy reversal from the Central Bank of Egypt, which has resisted increasing interest rates.
S&P also kept its B sovereign credit rating on Egypt, which is six levels below investment grade, with a stable outlook.
“Nevertheless, we expect the continued implementation of the reform agenda, including the commitment to exchange rate liberalisation, to enhance structural economic competitiveness over the medium term,” the S&P analysts said.
