The UK economy grew by just 0.1% between July and August, according to new official figures from the Office for National Statistics (ONS).
The new figures bring three-month GDP growth to 0.3%, a slight increase from the 0.2% in the three months to July.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The meagre rate of growth serves as a slight boost to chancellor Rachel Reeves who can argue the government is overseeing a growing economy, but the low figures will still be disappointing as the chancellor has put growth at the forefront of her economic agenda.
One more set of monthly GDP figures will be published before the Autumn Budget, which is set to be delivered on 26 November and is widely expected to include tax rises.
In a further blow, the ONS has revised down its GDP figures for the previous month. When initially reported, the official statistics said the economy saw 0% growth in July, but now the ONS estimates the economy actually contracted by 0.1% that month.
A spokesperson for the Treasury told MoneyWeek: “We have seen the fastest growth in the G7 since the start of the year, but for too many people our economy feels stuck. Working day in, day out without getting ahead.
“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.”
Meanwhile, Reeves’s opposite number, Conservative shadow chancellor Mel Stride, said: “ONS figures this morning show that growth continues to be weak and Rachel Reeves is now admitting she is going to hike taxes yet again, despite all her promises.
“If Labour had a plan – or a backbone – they would get spending under control, cut the deficit and get taxes down, as the Conservatives have set out with our £47 billion savings plan. Instead they are going to hit a fragile economy with more damaging tax rises.”
The figures come after the International Monetary Fund (IMF) upped its 2025 UK growth forecast to 1.3%, up from the 1.1% it anticipated in July. The body expects the UK to have the second-highest growth rate of the G7, after the United States.
But a 2025 upgrade came with a growth downgrade for 2026 as the IMF now believes the UK economy will grow by 1.3% in 2026, down from its July forecast of 1.4%.
What is more, the outlook also predicted the UK will average the highest inflation rate of any advanced economy in this year and next.
August growth figures overshadowed by July’s contraction
While growth of any kind is a cause for cautious celebration for allies of the government, others have focused more on the ONS’s revision of July’s GDP data which now shows the economy contracted by 0.1% that month.
Sanjay Raja, chief UK economist at Deutsche Bank, said: “Today's GDP release, while meeting expectations, was overshadowed by backward revisions. July GDP was revised lower and is now estimated to have shrunk by 0.1% month on month. Both the services and construction sectors saw downgrades.”
As for Deutsche Bank’s Q3 GDP growth estimates, the bank now expects the UK economy to grow by just 0.2% quarter-on-quarter.
Raja added: “To be sure, the economy is now running at a lower gear after a strong start to the year. As we noted in our preview, we expect some turbulence to continue as we approach year-end. Indeed, the UK economy has yet to see the full ramifications of the US trade war. Budget uncertainty is hitting its peak too – likely dampening discretionary household and business spending.”
Meanwhile, Ruth Gregory, deputy chief UK economist at Capital Economics, said the consultancy does not expect GDP growth to get much better for the rest of the year.
She 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. With business sentiment on the floor and employment still falling, we doubt growth will improve much in Q4.”
The muted growth figures for August have redoubled fears among some that potential tax rises will exacerbate the country’s economic woes.
Russ Mould, investment director at AJ Bell, said: “Rachel Reeves might be reaching for a buck’s fizz after the UK economy showed growth in August after contracting in July. However, the celebration may be short lived as a 0.1% expansion is minuscule and lower than the 0.2% growth expected by some economists.”
“We’re just six weeks away from the chancellor’s Budget and the nation is eager to know how Reeves plans to get the country moving while also repairing the black hole in public finances.
“A lot of people view the UK as being in a difficult spot – lacklustre growth and a weak financial position. The outlook is far from rosy and there is a big risk that tax tweaks could further dampen consumer and business sentiment.”
Lindsay James, investment strategist at Quilter, said: “Today’s GDP figures paint a picture of an economy stumbling to the end of the year after a strong start.
“Markets will have been hoping for signs that the UK can maintain its early-year momentum but it appears that has now dissipated just as we approach a crunch Budget statement from the chancellor. Rachel Reeves will need to find a tonic and quickly if she is to extricate the economy from its current malaise.”
James added that high inflation is putting pressure on consumers while rumours of tax rises in the Budget are also worrying both businesses and individuals, saying: “Last year showed just how much impact that uncertainty can have on economic growth and now this year appears as if it will be no different.
“If this government is about stimulating growth, then this Budget needs to restore some much-needed confidence in the outlook. Tax rises will continue to act as a heavy anchor on the economy, and anything that adds yet more inflationary pressure should be shelved for another day.”
-
Family investment companies explained: how the ultra wealthy shield their money from the taxmanWealthy families are increasingly turning to family investment companies to keep more of their money away from HMRC – but what are these arrangements and how do they work?
-
How to boost your pension pot as 35% of UK over 50s face huge retirement savings gapOver 50s are facing a later life with little to no funds - but there are steps you can take now to boost your pot.
-
Why investors can no longer trust traditional statistical indicatorsOpinion The statistical indicators and data investors have relied on for decades are no longer fit for purpose. It's time to move on, says Helen Thomas
-
Wage growth slows and unemployment climbs as UK labour market suffered a soft summerWages grew by 4.7% in the three months to August, down from the previous quarter, while unemployment edges up to the highest level since May 2021.
-
Is the Office for National Statistics fit for purpose?Britain’s statistics authority, the Office for National Statistics, is increasingly unfit for purpose. Why, and what can be done?
-
UK inflation forecast: where are prices heading next?The Bank of England expects UK inflation to have peaked in September. Is inflation finally on the way down, and what does it mean for further interest rate cuts?
-
Uncertainty ahead of the Budget causes house price growth to stall, says RightmoveProperty website Rightmove says asking prices increased by just 0.3% in October, well below the 1.3% average for the month
-
UK GDP: UK economy stagnatesLatest GDP data shows the UK economy showed no growth in the third quarter of the year due to rising interest rates. But have we side-stepped a recession?
-
ONS: UK economy recovered from pandemic faster than previously thoughtRevisions from the ONS showed the UK economy has grown since the pandemic, while the latest data showed GDP grew in the second quarter of 2023.
-
UK economy avoids stagnation with surprise growthGross domestic product increased by 0.2% in the second quarter and by 0.5% in June
