The UK economy experienced a modest expansion of 0.1% in August, official figures reveal. This slight growth, primarily driven by an increase in manufacturing output, comes as attention sharpens on the upcoming Budget and potential government measures. However, the July figures were revised downwards, indicating a contraction of 0.1% for that month, highlighting the economy’s ongoing fragility.
Key Takeaways
- The UK economy grew by 0.1% in August, with manufacturing output being the main contributor.
- July’s economic performance was revised to a 0.1% contraction.
- Economists predict sluggish growth ahead, influenced by anticipation of the Chancellor’s Budget announcements.
- The services sector, a significant part of the economy, saw no growth in August.
Economic Performance and Outlook
The Office for National Statistics (ONS) reported that manufacturing output rose by 0.7% in August. Conversely, the crucial services sector, which encompasses retail, hospitality, and finance, remained stagnant for the month. While monthly figures can be volatile, the three-month rolling average showed a slight improvement, with the economy expanding by 0.3% in the three months to August, up from 0.2% in the previous period.
Despite the return to growth, economists express caution. Yael Selfin, chief economist at KPMG UK, noted that the economic outlook remains weak, with households facing rising costs for essentials and uncertainty surrounding potential tax increases in the Budget expected to dampen activity for both consumers and businesses. Ruth Gregory, deputy UK economist at Capital Economics, described August’s growth as "meagre" and suggested that recent tax increases for businesses are likely restraining growth. There is also speculation that disruption in the automotive sector due to a cyber-attack may have negatively impacted September’s figures.
Budget Speculation and Political Reactions
Chancellor Rachel Reeves has indicated that further measures on tax and spending are being considered to ensure public finances are balanced. This has fuelled speculation that tax rises are likely in the upcoming Budget, with the Institute for Fiscal Studies projecting that the Chancellor may need to find £22bn to meet her borrowing rules, almost certainly necessitating tax hikes. The think tank has urged the Chancellor to be "bold" and build a financial buffer.
In response to the latest figures, a Treasury spokesperson stated that while the UK has seen the fastest growth in the G7 since the start of the year, the economy "feels stuck" for many. They added that the Chancellor is committed to turning this around through business support and investment. However, shadow chancellor Mel Stride criticised the figures, arguing that growth remains weak and accusing the government of planning further tax increases. Liberal Democrat Treasury spokesperson Daisy Cooper called for the government to abandon its "slowcoach approach" and drop the National Insurance hike.
Broader Economic Context
Despite the sluggish domestic growth, the International Monetary Fund (IMF) has predicted the UK will be the second-fastest-growing advanced economy this year. However, it also forecasts the UK will experience the highest inflation rate among G7 nations due to rising energy and utility bills. Analysts do not anticipate the Bank of England will cut interest rates at its next meeting, as inflation remains elevated at 3.8%.
