UK economy grew 0.1% in August ahead of Healey's first Budget

Britain's economy grew by 0.1% in August, official figures showed on Wednesday, defying economists' expectations of a 0.1% contraction and handing Chancellor John Healey a modest boost less than two weeks before his first Budget. The Office for National Statistics said the expansion followed 0.4% growth in July and an upwardly revised 0.4% in June, previously reported as 0.3%.

The surprise growth came despite a 0.3% fall in consumer-facing services, which the ONS attributed to higher petrol and diesel prices and rising energy bills. The overall services sector was flat in August, while construction output fell by 0.2%. The production sector rose by 0.8%, driven by manufacturing, with computer programming the biggest contributor to growth over the three months to August, according to ONS director of economic statistics Liz McKeown.

Over the three months to August, GDP rose by 0.7%, and on an annual basis the economy grew by 2.1%, the strongest rate since August 2022. The figures were released as Healey attended the IMF and World Bank meetings in Bangkok, where the IMF this week upgraded its UK growth forecast for 2026 but warned of a slowdown in 2027 due to higher energy prices.

Healey welcomed the data as "more proof of Britain's resilience in the face of these global shocks," citing conflicts in the Middle East and Europe. He told the BBC that the IMF had endorsed Britain's fiscal discipline, with the lowest forecast G7 deficit by 2029, and promised his Budget would "provide some breathing space for today, and offer fresh hope for the future."

Economists cautioned that the momentum may not last. Sanjay Raja, chief UK economist at Deutsche Bank, said there could be "hiccups to come in the runup to year-end" as energy prices bite. Matt Swannell, chief economic adviser to the Item Club, said a pullback looks inevitable, with higher oil and gas prices likely to push inflation over 4% and prompt tighter monetary policy. Financial markets now expect the Bank of England to raise rates from 3.75% to 4% next month, followed by four more quarter-point increases in 2027.

The political reaction was mixed. Shadow chancellor Andrew Griffith said the growth figures "conceal worrying trends in key sectors," noting construction has shrunk for four consecutive months. Liberal Democrat Treasury spokesperson Daisy Cooper called the 0.1% growth "nothing to celebrate," saying the economy is "stuck in first gear."

“Despite conflicts in the Middle East and Europe hitting people across the world, today's figures offer more proof of Britain's resilience in the face of these global shocks.”

: Chancellor John Healey

“The UK's growth performance has been a bright spot amid a less impressive run of economic news following events in the Middle East. Business investment has been an important driver, particularly spending on ICT hardware, likely linked to the build-out of AI infrastructure.”

: Jake Finney, senior economist at PwC