The UK economy grew by 0.1% between July and August, the Office for National Statistics said, surprising economists who had forecast a contraction of 0.1% for the period. The expansion marked a significant slowdown from growth of 0.4% month-on-month in both June and July. On an annual basis, GDP expanded by 2.1% in August, exceeding analyst expectations of 1.7% and marking the strongest year-on-year reading since August 2022.
Production drove the monthly expansion, growing by 0.8%, the ONS said. However, services output remained flat and construction fell by 0.2%, reflecting ongoing weakness in those sectors. The currency market responded positively to the data, with sterling climbing 0.4% against the US dollar. Yields on UK government bonds fell across the curve, with the benchmark 10-year gilt yield declining 9 basis points to 5.3364%.
The economic performance comes as the UK government prepares its Autumn Budget on October 28. Analysts noted that the slowdown in growth may constrain the fiscal space available for finance minister John Healey, particularly given high long-term government borrowing costs and rising debt servicing expenses. Economists warned that tax increases to balance public finances carry risks to consumer spending and business investment, while unfunded spending commitments could unsettle financial markets and raise borrowing costs further.