The UK economy grew by 0.1% in August, according to official figures released by the Office for National Statistics (ONS), exceeding economists' expectations of a 0.1% contraction. The expansion follows stronger growth in June and July, with GDP rising by 0.4% in both months. The ONS also revised its June GDP estimate upward to 0.4%, up from a prior prediction of 0.3%.
The three-month rolling GDP growth to August reached 0.7%, driven primarily by the services sector, despite no growth in August itself. Production output grew by 0.8%, while construction declined by 0.2%. Over the past year, GDP increased by 2.1%, the highest annual growth since August 2022.
Chancellor John Healey is set to deliver the Autumn Budget on October 28, where fiscal policy decisions will be announced amid ongoing economic challenges.
Key Drivers of Growth
The ONS highlighted that computer programming was the largest contributor to the three-month growth, alongside strength in legal services, research and development, and advertising. However, services activity stalled in August, offsetting some of the gains.
Production growth in August was led by manufacturing, particularly in computer, electronic, and optical products. The construction sector, meanwhile, continued its recent decline, contracting for the second consecutive month.
Economic Context and Market Reaction
The UK remains in a cost-of-living crisis, with inflation remaining above target and energy costs elevated due to geopolitical tensions, including the Russia-Ukraine war and regional conflicts. Despite this, the British pound strengthened by 0.4% against the US dollar following the GDP release, while UK government bond yields fell, with the 10-year gilt yield dropping 9 basis points to 5.3364%.
Economists had anticipated a 0.1% decline in GDP for August, making the positive reading a surprise. The three-month growth rate of 0.7% suggests a moderating but still positive economic trend.
Budget Implications
The upcoming Autumn Budget will be closely watched as the government balances fiscal rules aimed at reducing public debt with efforts to mitigate the impact of high living costs. The Chancellor faces pressure to address sticky inflation, wage stagnation, and energy affordability while adhering to fiscal constraints.
The ONS data provides a mixed picture: while growth has exceeded expectations, the slowdown in services and construction underscores ongoing vulnerabilities in the economy.