Economy returned to growth in August – industry reaction

Latest data from the Office for National Statistics (ONS) has shown that the UK economy grew in August, with GDP up 0.2%. This comes after two flat months, with no growth in June and July. The ONS also estimates that the economy grew by 0.2% in the three months to August. This marks a slowdown on the 0.7% and 0.5% growth seen in Q1 and Q2, respectively.

ONS Director of Economic Statistics Liz McKeown said “All main sectors of the economy grew in August, but the broader picture is one of slowing growth in recent months, compared to the first half of the year.

“In August accountancy, retail and many manufacturers had strong months, while construction also recovered from July’s contraction. These were partially offset by falls in wholesaling and oil extraction.”

Ben Jones, Lead Economist at the CBI, said “There are some encouraging signs in the latest GDP data, particularly the ongoing recovery in retail, but growth remains uneven across sectors and momentum in the economy is a little weaker than was expected a few months ago. Our surveys suggest that businesses may have tapped the brakes again in September amid speculation over potential Budget announcements.

“Anecdotally it’s clear that some firms have paused hiring and investment decisions pending more clarity over the direction of the new government’s economic policies. With the Chancellor’s first Budget only weeks away, the government has an opportunity to build momentum behind the economic recovery by demonstrating it has a credible plan for boosting the country’s growth trajectory.

“This should include measures to support productivity and business investment, such as adding flexibility to Apprenticeship Levy funded courses and outlining an ambitious Net Zero Investment Plan that includes green tax incentives. It must also make the UK’s business environment more attractive to firms at home and abroad by providing them with certainty and clarity via a Business Tax Roadmap.”

Suren Thiru, ICAEW Economics Director, said “These figures confirm a reassuring rally in output, as easing inflation and better weather helped return the economy to growth by reviving activity in key sectors, including retail and manufacturing.

“August’s uptick is unlikely to have prevented a slowdown in GDP growth across the third quarter, as lower business and consumer confidence may well have squeezed activity in September.

“The UK economy could blow a bit hot and cold over the near term, as the lift to incomes from muted inflation is hindered by growing consumer and business caution amid global geopolitical uncertainty and probable tax hikes.

“While interest rates are still likely to fall in November, these positive figures mean it’s not quite a done deal by giving the more hawkish rate setters enough encouragement over economic conditions to hold off voting to relax policy.”