The UK economy grew by a modest 0.1% in August, primarily driven by a rebound in the manufacturing and health sectors. This slight expansion comes ahead of a crucial budget next month as businesses and consumers await clarity on the government’s financial plans.
However, the positive news was tempered by a downward revision of July’s economic data, which now shows a 0.1% contraction instead of the previously reported flat performance. This adjustment limits the overall growth in the three months leading up to August to 0.3%.
The manufacturing industry was a key driver of August’s growth, expanding by 0.7% and reversing a 1.1% decline from the previous month, with the pharmaceutical sector showing particularly strong output. In contrast, the services sector, which constitutes about three-quarters of the economy, remained stagnant for the second consecutive month. The construction sector also faced a downturn, shrinking by 0.3%.
The economic outlook remains sluggish as the Chancellor considers potential tax rises in the November 26 budget to address a spending gap estimated between £20bn and £30bn. Many businesses report facing subdued demand and higher operating costs, causing them to delay investment and hiring until the policy outlook is clearer.
Despite the challenges, the UK is on track to be one of the G7’s fastest-growing economies this year. Projections suggest that inflation will begin to ease by the year’s end, with interest rate cuts expected in 2026, which should help alleviate pressure on household finances.