UK economy grew 0.2% in August

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The UK economy saw growth of 0.2% in August after two months of stagnation, driven by expansions across services, manufacturing, and construction.

Friday’s figure, in line with predictions from economists, followed zero growth in June and July but represented a slowdown from earlier in the year.

Services output increased by 0.1% in August, production by 0.5%, and construction by 0.4%, according to the Office for National Statistics.

Economist Ashley Webb from Capital Economics stated that the August expansion, following three months of no growth, supports the view of a mild slowdown in GDP growth in the second half of the year rather than another recession.

With the ONS data released less than three weeks before Labour’s initial Budget, Chancellor Rachel Reeves faces the challenge of boosting economic growth while addressing public finances.

Prime Minister Sir Keir Starmer and Reeves have emphasized growth as a priority for Labour, cautioning the public that the October 30 Budget will involve “painful” decisions.

Recently, the chancellor pledged to “invest, invest, invest” as part of plans to increase capital investment and enhance infrastructure.

Following ONS revisions for May and April, Pantheon Macroeconomics adjusted its growth forecast for the third quarter to 0.2%, below the Bank of England’s prediction of 0.3%. Third-quarter GDP figures are expected in November.

Economist Rob Wood from the consultancy stated that slower growth below the MPC’s forecast makes a rate cut by the Bank of England in November highly likely.

Despite the slowdown, Wood believes that the UK’s expansion has more room to grow, predicting a 0.4% growth in the final quarter due to wage increases, low unemployment, and lower interest rates.

Reeves expressed satisfaction at the return of growth in the economy, emphasizing the government’s focus on economic growth to improve the NHS, rebuild Britain, and enhance the welfare of working individuals.

Over the three months leading to August, the economy expanded by 0.2%, a significant drop from the 0.7% growth in the preceding three months and the 0.5% growth in the second quarter.

Liz McKeown, ONS director of economic statistics, noted that while all major sectors of the economy grew in August, there has been a trend of slowing growth in recent months compared to earlier in the year.

Additional data from the ONS indicated that the trade deficit in goods and services widened by £3 billion to £10 billion in the three months to August due to increased imports of goods.

The economy entered a technical recession at the end of the previous year but bounced back at the beginning of this year as inflation eased and mortgage rates dropped.

With falling inflation, the Bank of England lowered interest rates in August for the first time in over four years. While the central bank maintained the benchmark rate at 5% last month, it suggested a potential further reduction in borrowing costs at the next Monetary Policy Committee meeting on November 7.