The UK economy unexpectedly grew by 0.1% in August, according to the Office for National Statistics, defying City forecasts of a 0.1% contraction. The growth followed a 0.4% expansion in July, marking a second consecutive month of positive output despite mounting pressure on household budgets.
The figures, released just two weeks before chancellor John Healey delivers his budget, suggest the economy has retained some momentum even as consumers cut back. The ONS reported that gross domestic product rose modestly in August, with the services sector providing the main support. Economists had widely expected a decline, making the positive reading a surprise for markets and policymakers alike.
Consumer spending fell during the month, reflecting the strain on household finances from elevated fuel costs and the broader cost of living crisis. The decline in spending underscores the challenges facing the chancellor as he prepares a budget aimed at helping consumers navigate persistent price pressures. The data indicates that while overall output edged higher, the underlying picture for households remains difficult.
The 0.1% growth in August compares with a stronger 0.4% rise in July, suggesting a slowdown in the pace of expansion. The ONS figures show that the economy has now grown for two consecutive months, but the modest rate highlights the fragility of the recovery. City economists had forecast a contraction, and the upside surprise may ease immediate concerns about a downturn, though it is unlikely to alter the broader narrative of weak growth.
The chancellor's budget, due in two weeks, is expected to focus on measures to support consumers and address the cost of living. The August GDP data provides a mixed backdrop: growth has continued, but the fall in consumer spending signals that households are still under financial pressure. The budget will need to balance support for consumers with fiscal constraints, as the government seeks to foster growth without exacerbating inflation.
The services sector was the primary driver of growth in August, according to the ONS, offsetting weaknesses elsewhere. The figures do not provide a detailed breakdown, but the overall picture points to an economy that is expanding at a slow pace. The fall in consumer spending is a concern because household consumption is a key component of GDP. If spending continues to decline, it could weigh on future growth.
Fuel costs have been a significant factor in squeezing household budgets, contributing to the decline in consumer spending. The cost of living crisis has been a central issue for the government, and the upcoming budget is expected to include measures to alleviate some of the pressure. However, the chancellor faces limited fiscal room, and any support will need to be carefully targeted.
The August GDP reading is unlikely to change the broader outlook for the UK economy, which remains challenged by weak productivity, global uncertainties, and the lingering effects of high inflation. The 0.1% growth is a positive sign, but it is far from a robust recovery. Economists will be watching the budget closely for signals on fiscal policy and its potential impact on growth.
Overall, the data presents a picture of an economy that is growing, but only just. The unexpected expansion in August provides some relief, yet the decline in consumer spending serves as a reminder that many households are still struggling. The chancellor's budget will be a key moment for setting the direction of economic policy in the months ahead.