The UK economy unexpectedly expanded in August, with gross domestic product rising by 0.1%, the Office for National Statistics said. This outperformed predictions from City economists, who had forecast a 0.1% contraction. Growth slowed from 0.4% in July. The figures offer a boost to Chancellor John Healey ahead of his first budget announcement on 28 October.
The data reveal a mixed picture. Consumer-facing services fell by 0.3% during the month, with falls in sports, recreation and food and drink services. The Office for National Statistics attributed this partly to higher petrol, diesel and energy prices squeezing household budgets. However, manufacturing and energy generation provided strength, with the wider production sector growing by 0.8%, while construction output fell by 0.2%.
Over the three months to the end of August, GDP rose by 0.7%, and annual growth reached 2.1%, the strongest rate since August 2022, the Office for National Statistics reported. Sanjay Raja, chief UK economist at Deutsche Bank, said the UK's resilience story remained strong despite expected challenges ahead. The International Monetary Fund this week upgraded its growth forecasts for the year but warned of a modest slowdown in 2027 as energy prices continue to weigh on households.
The backdrop remains uncertain. Economists warned that momentum was likely to fade as households face pressure from inflation and rising energy costs. Financial markets currently anticipate the Bank of England will raise interest rates from 3.75% to 4% next month, with four further increases expected in 2027.