Small firms relieved to see modest GDP rise

12th October 2023

Latest figures from the Office for National Statistics (ONS) has shown that GDP grew 0.2% in August, and 0.3% between June to August.

The services sector was the biggest contributor with growth of 0.4%. Consumer services were down 0.6% after a 10.8% fall in sports, amusement and recreation activities. Production output fell 0.7% whilst construction also fell, down 0.5% as heavy rainfall delayed projects.

ONS Director of Economic Statistics Darren Morgan said “Our initial estimate suggests GDP grew a little in August, led by strong growth in services which was partially offset by falls in manufacturing and construction. Within services, education returned to normal levels, while computer programmers and engineers both had strong months.”

“Across the last three months as a whole the economy has grown modestly, led by car manufacturing and sales, and construction.”

Responding to Office for National Statistics figures Tina McKenzie, Policy Chair of the Federation of Small Businesses (FSB), said “This modest rise in August’s GDP is a relief, coming on the heels of the sharp drop recorded in July. The recovery in services has driven the increase, but this masks concerning falls in production and construction, indicating that there are downward pressures on many sectors.”

“Today’s figures will go some way to allaying fears that the summer was a wash-out for small firms, although our research has consistently found that confidence levels in some sectors – especially consumer-facing ones such as retail and hospitality – have trailed behind the overall results for all sectors. The early September pause in the upward march of the base rate has given small firms a ray of hope that the margin squeeze they’re enduring may ease.”

“As we’ve seen in recent months, growth is volatile and fears of a recession have yet to be fully banished. If this most recent monthly rise is to be sustained, the Government will need to consider how it can promote a trading environment where small firms can flourish. It’s imperative for the Government to extend the 75% business rates discount for retail, hospitality and leisure firms beyond its current expiry date of April next year. It’s been a lifeline for thousands of small businesses and its continuation would limit the need for jarring price rises next April in consumer-facing sectors.”

“Extending the VAT threshold to £100,000 would be another smart move to support economic growth. The blueprint for a thriving economy hinges on supporting small housebuilders. Small construction enterprises deserve a seat at the Government planning table, and by introducing brownfield development incentives and allowing the Community Infrastructure Levy to be paid at a project’s end rather than the beginning, we can lay the groundwork for strong GDP and economic recovery.”

“The millions of small business owners and self-employed people make up a powerful voting bloc, and they will be looking to the Autumn Statement for policies which will help them achieve their ambitions, and which will help the economy overall.”

Kitty Ussher, Chief Economist at the Institute of Directors, said “Following the contraction in July it is reassuring to see economic growth recorded in August meaning that when the previous three months are taken together output has been positive. In part this is due to strikes in the education sector having affected July’s data.”

“However, the picture is less rosy when looking at the consumer-facing sectors. Output in consumer-facing services fell by 0.6% in August with discretionary spending on sports and leisure activities being particularly hard hit. This may be because recent interest rate rises are causing households to budget carefully in the face of rising mortgage costs.”