The UK economy returned surprise growth in August, beating economists' forecasts of a contraction for the month and giving chancellor John Healey what one expert termed a “gift” of “good news”.
Gross domestic product (GDP) rose by 0.1 per cent in August, according to the Office for National Statistics.
Strong factory production helped drive the expansion, the official figures showed. The reading marked a slowdown, however, after stronger activity earlier in the summer.
July's growth was stronger, at 0.4 per cent, while the economy also expanded by 0.4 per cent in June.
Nonetheless, the UK economy has shown remarkable resilience this year, with a third straight month of growth far above what many had expected.
The June figure was revised upwards by the statistics body, which had previously put growth at 0.3 per cent.
Across the three months to August, the economy grew by 0.7 per cent, the data showed.
ONS director of economic statistics Liz McKeown said: “GDP growth showed further strength in the latest three months, led by the services sector, while both production and construction fell.”
The August performance exceeded the expectations of economists, who had earlier pointed to a 0.1 per cent decline for the month.
There will still be further challenges ahead to maintain momentum though, with cost pressures from the Middle East conflict still weighing on businesses and consumers alike and more of the same lying ahead, with energy bills set to rise again in the new year.
The British Chambers of Commerce (BCC) urged chancellor Healey to cut National Insurance contributions for young workers in the upcoming Budget to support firms, as well as providing support for energy costs.
“It is clear many sectors are still struggling to make headway amidst global headwinds. Firms are facing significant pressures from the cost of doing business, as the Middle East conflict continues to ratchet up energy prices,” said BCC research manager Stuart Morrison.
“The Chancellor’s Budget, in less than two weeks, provides a crucial opportunity to give businesses the breathing space they need to invest, recruit and trade.”
Others, however, feel the positives can be taken from the latest reading.
Samuel Fuller, director of Financial Markets Online, said: “The UK’s solid economic data has showered gifts on its new Chancellor but given a mixed blessing to borrowers and homeowners.
“For Chancellor John Healey, the news is mostly good. Even though construction output continues to slide, growth in the UK’s dominant services sector is solid and broadbased, with 10 out of the 14 services subsectors tracked by the ONS seeing output expand.”
The positivity was echoed by Chris Beauchamp, chief market analyst at IG, who added: “Whisper it quietly, but things have started to brighten for the UK. Construction is still struggling but services and manufacturing are showing signs of decent growth. A good third quarter seems likely, which is just the kind of framing Healey needs for his big appearance in a matter of weeks.”
But others are not as convinced.
Continued high energy and fuel prices as a result of the Iran war will put more inflationary pressure as the year goes on, while Budget announcements could of course hamper business productivity into next year.
“We’re sceptical this strength can last,” said Matt Swannell, chief economic adviser to ITEM Club. “We’re in the part of the year where residual seasonality tends to cause momentum to fade. Meanwhile, other indicators aren’t consistent with an economy growing at an annualised pace of around 3 per cent. So, some pullback looks inevitable.
“These headwinds will only strengthen, producing a further slowdown in growth around the turn of the year. Persistently high oil and gas prices will push inflation over 4 per cent and prompt a tightening of monetary policy. These factors will further squeeze consumer spending power, while tight fiscal policy will add to the pressures. But we expect activity to recover from the second half of 2027, as energy prices normalise and inflation falls.”
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