Inside the UK economy: Insights from NatWest Chief Economist Sebastian Burnside

Adit Goyal 

In a recent briefing from NatWest chief economist, Sebastian Burnside, he shared an overview of the UK economy. From inflation and labour markets to evolving consumer behaviour and climate pressures, his remarks revealed an economy undergoing significant structural changes. 

Here are the key takeaways from his talk: 

1. Inflation – Energy prices down. However, services continue to rise 

Inflation in the UK hit double digits following the Russian and Ukraine war, which was driven by energy costs. While those energy costs have fallen since, inflationary pressures present in the UK today have not disappeared but shifted. 

According to Burnside, wage growth and the persistent rising cost in the services sector are now the primary contributors to the continued inflation. Predictions have been made that inflation will remain relatively stable with slight continued price pressures. 

2. Labour Market – strong but cooling 

The UK labour market has remained at a strong point since the Covid pandemic for the past few years, with unemployment rates remaining low. Although the labour force survey has faced some scrutiny, every indicator suggests that there is low unemployment, which means the market remains robust. 

However, Burnside stated that there are signs of cooling trends: as there are fewer vacancies, and fewer people hired in new roles. This points to a slower, more cautious phase in the labour cycle; this could dampen wage growth and ease inflation over time. 

3. Consumer Trends: Technology, Tight Budgets, and TikTok 

Consumer behaviour is central to the demand in the economy. The UK demand is very comparable to European countries, however far from what the US has achieved. While the Americans have spent 97 cent of every dollar earned, which has led to greater demand, compared to the UK households whose saving ratio doubled to an unusually high figure. Despite the high savings ratio, this can be good for the UK, as if the UK can stabilise and flatline the current savings ratio and prevent further saving, it could unlock 1% GDP growth without increasing financial vulnerability. 

The NatWest transaction data shows clear value seeking behaviour, mainly among mortgage holders affected by rate increases. Those who remortgaged during mortgage interest rate spikes cut spending by 3-4% at Waitrose, compared to those who refinanced earlier. 

At the same time, technology plays a huge role in how people spend. Platforms such as Instagram enable purchases to be made in less than 15 seconds. This creates more frequent, lower cost transactions and shifting shopping habits away from a traditional weekly shop. Which overall adds up to a larger number of purchases made, greater than shopping in person. 

4. Global Trade and Tariffs: Exposure but limited impact 

Burnside had addressed the rising trade tensions between US and China, which have led to significant new tariffs. The UK exports to the US, mainly car parts, food and drinks such as Whiskey, which in 2024 the UK exported £971 million worth of scotch whiskey to the United States. All exports combined are worth £60 billion annually, around 2.1% of UK GDP. A hypothetical 10% US tariffs on UK goods would have minimal impact, due to the UK’s relatively lower reliance on goods trade compared to services. 

More broadly, the UK remains highly sensitive to global economic shifts: 

• 1% slowdown in the Eurozone would lower UK growth approximately 0.6% 
• 1% slowdown in China would cut UK growth by approximately 0.1% 

5. High Street and Social Shifts: New Priorities for a New Generation 

Burnside cited data from Green Street Advisors showing how the UK high street is evolving: 

• The net gain of 665 barber shops reflects a shift toward grooming and beauty. 
• Increased demand for Japanese takeaways and beauty salons 
• A decline in women's hairdressers' points to shifting spending priorities. 

These changes are strongly driven by TikTok trends, with younger consumers making decisions in shorter cycles. Notably, about one-third of under-25s now abstain from alcohol, and over 50% meet partners via dating apps — a dramatic shift from just 5% in earlier decades. 

As most transactions now happen online, fewer physical bank branches are needed, changing the landscape of the high street entirely. 

6. Climate Impacts: Wet Weather, Higher Costs 

Climate change is already impacting the economy. The UK experienced a spring with triple the usual rainfall, forcing more agricultural imports at higher prices. The Met Office even introduced two new weather alert colours to account for extreme rain levels. 

Flooding has not only disrupted farming but also caused temporary factory closures, adding supply-side pressure to the economy. As climate volatility increases, economic resilience will increasingly depend on how well the UK can adapt its infrastructure and supply chains. 

Conclusion: An Economy in Transition 

Sebastian Burnside’s remarks offer a clear message: the UK economy is navigating a complex transition. Inflation is no longer energy-driven but embedded in services and wages. The labour market, though resilient, is cooling. Consumers are changing how they spend, influenced as much by interest rates as by Instagram. 

Meanwhile, global trade, social behaviour, and climate events are shaping a new economic reality. Understanding these trends is essential for policymakers, businesses, and consumers navigating the years ahead.