Economy grew in August – industry reaction

The UK economy grew by 0.1 per cent in August, after economists previously forecasted that it would fall, according to data from the Office for National Statistics (ONS)

The small increase follows 0.4 per cent growth in July and comes as Chancellor John Healey prepares to give his first Budget this month. In the three months to August, the economy expanded 0.7 per cent, driven by an increase in production in manufacturing, oil and gas extraction and energy supply.

The figures come after the International Monetary Fund lifted its forecast for growth this year to 1.3 per cent, up from the 0.8 per cent predicted in April.  Economists expect the outlook for growth to worsen in the coming months, as inflation pushes costs for households and businesses higher, with the Bank of England largely expected to raise interest rates to four per cent next month.

Commenting on GDP figures for the three months to August, ONS Director of Economic Statistics Liz McKeown said “GDP growth showed further strength in the latest three months, led by the services sector, while both production and construction fell. Upward revisions to already strong services growth in June and July helped drive robust growth across the three months, despite services showing no growth in August.

“Computer programming was once again the largest contributor to growth in the three months to August. Looking at a longer-term picture, compared with the same three-month period a year ago, the increased strength now seen in services is evident not just in computer programming but across a range of business-facing industries, including legal services, research and development and advertising.”

Anna Leach, Chief Economist at the Institute of Directors, said “August’s GDP figures extend a run of stronger-than-expected growth, with resilience across the economy and computer programming among the sources of strength. Our own data show a similarly uneven picture: pockets of strength in technology and renewables, alongside product and service innovation and firms finding new markets. But the IMF is right to warn that this resilience remains fragile.

“The IMF has singled out the UK for taking decisive action to reduce borrowing and urged the Government to stay the course. A credible path to lower borrowing should help rebuild the fiscal room needed to respond to future shocks. But, as the IFS has highlighted, delivering that path will be difficult, with the plans relying on ambitious improvements in public sector productivity, and the tax burden set to ratchet up further. Stronger growth would enable the government to maintain vital public services and enact its longer-term reform agenda more easily. Growth must remain the priority for this Budget, with action to unlock hiring and investment.”

Ben Jones, CBI Senior Lead Economist, said “GDP was broadly steady in August, but this follows exceptionally strong growth in June and July. The economy has generally performed well so far this year. But amid rising inflation and tightening financial conditions, maintaining that momentum does look difficult, with a more subdued end to 2026 in prospect.

“The messages coming from firms tell a story of an economy marked by contrasts. The strength of demand varies across sectors. Firms are investing, but cost pressures are forcing tough choices about which projects to back. Softer hiring sits alongside persistent shortages of key skills. Activity has proved resilient as businesses adapt to a challenging environment, but often at the expense of margins and future expansion plans.

“The Autumn Budget provides an opportunity for the government to build on the economy’s resilience by giving businesses the confidence and certainty they need to invest, expand and create jobs. That means taking action to reduce business electricity costs, ease the burden of employer National Insurance Contributions and reform business rates, while removing wider barriers to investment. With fiscal headroom limited, the Chancellor should prioritise measures that unlock growth, rather than adding further cost pressures that risk holding back investment, job creation and ultimately improvements in living standards.”

Suren Thiru, ICAEW Chief Economist, said “The UK economy continued to wrongfoot expectations in August as strong manufacturing output helped power better-than-expected growth, despite mounting financial pressures on households and businesses.

“The slowdown in AI-related activity suggests firms were using innovation as a near-term defensive tool to bolster resilience against this year’s economic headwinds, rather than a catalyst for sustained productivity growth.

“August’s uptick is likely to be followed by a more sluggish September, as rising oil and gas prices, mounting inflation and pre-Budget uncertainty undermine confidence and squeeze finances, sapping economic activity.

“While August’s unexpected uptick all but confirms that the OBR will raise its growth forecast for this year from 1.1% to 1.4%, the Chancellor still faces a major Budget headache, as elevated borrowing costs eat into fiscal headroom and increase pressure for tax rises.

“These unexpectedly upbeat figures will further embolden hawkish sentiment among policymakers by reinforcing the view that the economy is strong enough to withstand a rate rise, making a November hike look highly likely.”