UK economy grows against expectations in August

Britain's economy grew by 0.1 per cent in August, the Office for National Statistics reported, defying forecasts of a contraction of the same size and slowing sharply from July's 0.4 per cent. June's growth was revised up to 0.4 per cent, and the economy expanded 0.7 per cent over the three months to August, a stretch the ONS's Liz McKeown described as led by services while production and construction fell.

The figure landed days before the Chancellor delivers the autumn Budget, and its composition explains the problem. Production rose 0.8 per cent — the fastest in nine months — with manufacturing up 1.2 per cent on pharmaceutical output and car sales also strong. Services were flat after two strong months, bars and restaurants fell 2.7 per cent, and construction shrank 0.2 per cent under the weight of mortgage rates. A narrow industrial slice carried the month; the consumer-facing economy did not.

"The economy has generally performed well so far this year," said Ben Jones, senior lead economist at the CBI, "but amid rising inflation and tightening financial conditions, maintaining momentum looks difficult, with a more subdued end to 2026 in prospect." Yael Selfin, chief economist at KPMG, noted households now face renewed pressure from rising wholesale gas prices and higher long-term interest rates, after considerable strength in the first eight months despite headwinds from the Iran conflict and energy costs. She suggested the Chancellor may keep net borrowing on a declining path as a share of GDP while avoiding major tax rises.

An economy growing by a tenth of a per cent in a month does not generate money for new promises. A budget written against that base is mostly a decision about who pays for what already exists.

Economists had forecast a 0.1 per cent contraction for August. The economy grew by exactly that much.