Economy grew by 0.1% in August – industry reaction

The UK economy grew by 0.1 per cent in August, according lates to the Office for National Statistics (ONS) data, after contracting by 0.1 per cent in July.

The data comes ahead of the Budget next month and new forecasts by the Institute for Fiscal Studies (IFS) which have said that the Chancellor Rachel Reeves will need to fill a £22 billion fiscal hole through tax rises or spending cuts.

GDP rose 0.3% in the three months to August with Services showing no growth month-on-month. Construction output fell by 0.3% month-on-month whilst Production output grew by 0.4% month-on-month.

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.”

Mike Randall, CEO at Simply Asset Finance, said “A growing economy will be a welcome sight for the Chancellor, perhaps easing some of the pressure ahead of the looming Autumn Budget. The fact that businesses and consumers continue to show resilience is a good sign, but it must not be taken for granted. 

“Some business-positive policy in the Budget would be a certain way to give the economy a welcome ‘shot in the arm’, but it is certainty and stability that enables businesses to make investing decisions and set a clear plan for growth. Aligned policy direction, not incremental changes or loose promises, should now be the overwhelming priority for those in Number 11 to keep us on the road to growth.”

Anna Leach, Chief Economist at the Institute of Directors, said: “At headline level, the economy held up reasonably well over the summer, with steadier growth replacing the tariff-driven momentum seen earlier in the year. But the underlying picture is more mixed. Consumer services picked up slightly in August, helped by retail, yet the three-month trend remains negative as households see real income gains eroded by persistent inflation and weak confidence ahead of the Budget. Manufacturing output, meanwhile, remains flat and volatile, reflecting the pressure of a challenging global environment, alongside domestically-driven cost pressures.

“The underlying trends in construction are particularly worrying. The sector is already contending with acute skills shortages, rising costs and long delays at the Building Safety Regulator. Added uncertainty over potential housing tax changes in the forthcoming Budget is further weighing on housing demand. Unlocking infrastructure and housing delivery is critical to the UK’s growth future. The Budget must tackle systemic barriers head-on – accelerating planning reform, strengthening skills support, alleviating cost pressures and delivering long-term stability for the industry.”

Julian Jessop, Economics Fellow at the Institute of Economic Affairs, said “There is little to cheer in the latest GDP data. The feeble monthly growth of 0.1% in August followed a downwardly revised contraction of 0.1% in July, and means that activity has been flat over the latest two months.

“The three-month comparison did improve slightly, from 0.2% to 0.3%, but is likely to drop back again in September. The big picture is that the UK economy has stalled again as pre-Budget jitters have frozen activity in the private sector.

“This is confirmed by multiple surveys across the full range of businesses – including services, retail, manufacturing, construction, and the housing and labour markets.

“The Chancellor must use her November statement to restore some confidence among businesses, consumers and investors. If taxes are raised, this should at least be done in ways that reduce uncertainty once and for all.

“This could be achieved by broader-based increases in the main taxes, which would raise more money in ways that are less likely to distort the economy, combined with an increase in the fiscal headroom to protect against future shocks.

“But it would clearly be much better to focus on controlling public spending and freeing the private sector to drive growth instead.”

Suren Thiru, Economics Director at ICAEW said “This dishearteningly meagre return to growth will do little to allay fears over the wellbeing of the UK economy, with higher manufacturing output masking weaker activity in other sectors, notably services and construction.

“August’s increase is unlikely to have triggered a noteworthy pickup in economic growth across the third quarter with higher inflation and free-falling business confidence expected to have restrained output in September.

“November’s Budget is casting a long shadow over the UK economy with growing worries over more tax rises likely to prompt greater caution among consumers and businesses to spend and invest throughout the Autumn.

“While a rate cut next month looks improbable, these anaemic figures mean it’s not quite a done deal as it gives those rate setters worried over economic conditions with more encouragement to vote to relax policy.”