UK economy grew 0.1% in August

The UK economy expanded by 0.1% in August, in line with market expectations, providing chancellor Rachel Reeves with a modest boost as she prepares for a challenging November budget.

The monthly GDP data, released by the Office for National Statistics (ONS), mirrored the forecast from economists polled by Reuters. It also marked a slight improvement over July, when the economy contracted by 0.1%, a figure that was revised down from an initial reading of zero growth.

Looking at a broader time frame, the economy grew 0.3% in the three months to August compared to the previous quarter, a rate that remained unchanged from the growth recorded in the second quarter of the year.

ONS director of economic statistics Liz McKeown said: “Economic growth increased slightly in the latest three months. Services growth held steady, while there was a smaller drag from production than previously.”

“Continued strength in business rental and leasing, and healthcare were the main contributors to services growth, partially offset by weakness in some consumer facing services, while wholesalers also fared poorly.”

Read more: UK inflation to rise to highest in G7, warns IMF

Production grew by 0.4% in the month, whereas services showed no growth and construction fell by 0.3% in August.

This data comes at a critical moment for Reeves, who is facing the dual challenge of repairing the public finances while fostering economic growth ahead of her budget announcement on November 26. The chancellor is expected to implement tax increases to address a significant fiscal shortfall, estimated by economists to be between £20bn and £30bn.

A HM Treasury spokesperson said: “We have seen the fastest growth in the G7 since the start of the year, but for too many people our economy feels stuck. Working day in, day out without getting ahead.”

“The chancellor is determined to turn this around by helping businesses in every town and high street grow, investing in infrastructure and cutting red tape to get Britain building.”

On Wednesday, Reeves said she was “looking at further measures on tax and spending, to make sure that the public finances always add up”.

“The economy has slowed over the course of the year, after a difficult summer for businesses,” said Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research (NIESR).

“Regaining momentum hinges on restoring business confidence and reducing uncertainty, which the government can support by setting aside a larger fiscal buffer in the upcoming budget.”

Earlier this week, the International Monetary Fund predicted that the UK economy would outperform other G7 economies, except the US, in 2025.

However, UK economic growth rates are expected to remain modest at 1.3% for this year and next. “The UK economy grew marginally in August, but remains firmly stuck in the slow lane. Recent data indicate that growth slowed over the summer and was downgraded in July, disappointing many after a strong start to the year.”

Scott Gardner, investment strategist at digital wealth manager, Nutmeg, said: “As the autumn budget approaches and the chancellor increasingly relies on OBR growth projections, this slowdown will concern policymakers and could make all the difference when it comes to tax and spending decisions. Unlocking growth is critical to easing the UK’s financial pressures and putting the economy back on solid ground.”

Sam Tims, lead analyst at the Joseph Rowntree Foundation (JRF), has warned that the UK’s modest GDP growth is not translating into improved living standards for struggling households, a trend he argues could ultimately hamper wider economic progress.

Read more: £30bn of tax rises and spending cuts expected in autumn budget, warns Goldman Sachs

“The GDP growth the government is banking on to drive higher living standards for families is too often in short supply,” Tims said in response to the latest figures showing 0.1% growth in August. “But rising living standards in and of themselves are important for economic growth.”

Tims mentioned a feedback loop between financial security and productivity, saying that families who are unable to cover basic needs such as food, heating, and bills are unlikely to perform at their full economic potential.

“More financially secure workers can take the sorts of risks, like starting a business or investing in their skills, that help grow our economy,” he added.

According to new projections from the JRF, living standards in the UK are declining, raising pressure on the government to act ahead of the November budget. Tims called for urgent interventions to raise household incomes and reduce cost pressures, including scrapping the two-child limit on benefits and establishing a guaranteed minimum floor in the social security system.

“Neither families, nor the wider economy, can afford to wait,” he said.

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