UK economy grew 0.1 per cent in August
The UK economy grew by 0.1 per cent in August, Office for National Statistics (ONS) figures have shown, with a struggling construction sector in the month weighing down on output across the UK.
The ONS data indicated on Wednesday morning the UK economy was set for a significant slowdown after an upswing in spending over the first half of the year.
Fresh data showed the UK economy grew 0.3 per cent in the three months to August while monthly growth was the same as economists expected.
The figures may still leave Chancellor Rachel Reeves exposed to further criticism given Labour’s central mission is to grow the UK economy at a faster pace.
The UK’s services sector, which makes up around 80 per cent of gross value added across the country, grew by 0.4 per cent over a three-month period while construction inched up 0.3 per cent.
Over August, however, services showed no growth and construction fell 0.3 per cent.
Official data also showed production fell 0.3 per cent in a three-month period but grew on a monthly basis in August, which is likely to spark fears that industry was struggling with mounting costs from tax hikes and a weakened demand for products.
“Economic growth increased slightly in the latest three months,” said Liz McKeown, director of economic statistics at the ONS.
“Services growth held steady, while there was a smaller drag from production than previously.”
Fresh data will intensify scrutiny over Labour’s growth efforts, with stagnation worries are expected to linger for the rest of the year.
The UK economy enjoyed one per cent growth in the first half of the year. Economists have pointed out that firms had front-loaded investment and spending before April’s “Liberation Day” given fears tariffs would hit UK industry, with sluggish growth to follow as the year comes to a close.
The ONS also revised figures for July as it said the UK economy declined 0.1 per cent in the month of July.
“We have seen the fastest growth in the G7 since the start of the year, but for too many people our economy feels stuck,” a Treasury spokesperson said.
“The Chancellor is determined to turn this around by helping businesses in every town and high street grow, investing in infrastructure and cutting red tape to get Britain building.”
Chancellor Rachel Reeves has also renewed calls in the last week for Cabinet members to focus on growth and stabilising inflation.
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “The meagre rise in real GDP in August suggests growth is still being hampered by high interest rates, higher taxes and soft overseas activity. W
“With business sentiment on the floor and employment still falling, we doubt growth will improve much in the fourth quarter.”
UK economy set for lowest GDP per capita growth next year
Earlier this week, the International Monetary Fund upgraded its UK growth forecast for 2025 by 0.1 percentage point earlier this week, pointing to higher expenditure levels at the beginning of the year.
But the IMF lowered its 2026 outlook as the average tariff rate is creeping back up. The UK was singled out for its exposure to a break-up in trading levels with the US.
The UN body also said GDP per capita growth in the UK would be the lowest out of all G7 countries next year.
Several business confidence surveys have meanwhile pointed to fears businesses have of further tax hikes damaging investment prospects.
As Reeves looks set to raise taxes by as much as £30bn at this year’s Budget, economists fear that a fiscal tightening could weigh on growth.
The IFS has called on Reeves to build a bigger headroom at this November’s Budget to avoid having to return for more tax increases in future years.
Ben Jones, the lead economist at the Confederation of British Industry (CBI), said firms were choosing to “sit tight on hiring and investment” until Reeves clarified her direction on policy.
“The Budget provides a critical opportunity for the government to reaffirm its commitment to growth. Going further on planning reform is a positive first step and firms will be looking for further supportive interventions on November 26th.
“This includes delivering the strategic reforms required to simplify the tax system, positioning business to invest in the skills they need through a fully flexible Growth and Skills Levy and exploring further measures to address the UK’s high energy costs.”