UK economy grew 0.2% in August

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The UK economy grew 0.2 per cent in August following two months of stagnation, helped by broad-based expansions in services, manufacturing and construction.

Friday’s figure, in line with economists’ forecasts, came after zero growth in June and July but marked a slowdown from the start of the year.

Services output grew 0.1 per cent in August, production was up 0.5 per cent and construction expanded 0.4 per cent, the Office for National Statistics said.

Ashley Webb, economist at consultancy Capital Economics, said the expansion in August, after the economy failed to grow in three of the four previous months, “lends some support to our view that a mild slowdown in GDP growth in the second half of this year is more likely than another recession”.

The ONS data comes less than three weeks before Labour’s first Budget, when chancellor Rachel Reeves faces the challenge of lifting economic growth while repairing the public finances.

Prime Minister Sir Keir Starmer and Reeves have put growth at the heart of Labour’s agenda, but warned the public in the summer that the Budget on October 30 will include “painful” choices.

More recently, the chancellor vowed to “invest, invest, invest” as she prepared to increase capital investment in order to boost infrastructure.

The ONS revised down growth for May and April, prompting Pantheon Macroeconomics to cut its growth forecast for the third quarter to 0.2 per cent, from 0.3 per cent, which is 0.1 percentage point below the Bank of England’s forecast. GDP figures for Q3 will be released in November.

“Growth slowing below the MPC’s forecast leaves a [BoE] rate cut in November as a racing certainty,” said Rob Wood, economist at the consultancy.

“But the UK’s expansion still has further to run,” he added, predicting that wage rises, low unemployment and lower interest rates would contribute to 0.4 per cent growth in the final quarter.

Reeves said it was “welcome news that growth has returned to the economy”, adding: “Growing the economy is the number-one priority of this government so we can fix the NHS, rebuild Britain and make working people better off.”

In the three months to August compared with the previous three months, the economy grew 0.2 per cent — a sharp slowdown from the 0.7 per cent expansion in the three months to March and growth of 0.5 per cent in the second quarter.

“All main sectors of the economy grew in August, but the broader picture is one of slowing growth in recent months, compared to the first half of the year,” said Liz McKeown, ONS director of economic statistics.

Figures from the agency also showed that the goods and services trade deficit, the gap between exports and imports, widened by £3bn to £10bn in the three months to August, because of increased imports of goods.

The economy entered a technical recession at the end of last year, but returned to growth at the start of this year as price pressures eased and mortgage rates fell.

Falling inflation prompted the BoE to cut interest rates in August for the first time in more than four years. The central bank held its benchmark rate at 5 per cent last month but indicated it might reduce borrowing costs again at the next meeting of the Monetary Policy Committee on November 7.