UK (Parliament Politics Magazine) – UK economy grew 0.1% in August, boosted by manufacturing and health, as Chancellor Rachel Reeves prepares a budget to close a £20–30bn fiscal gap.
As reported by The Guardian, official figures show Britain’s GDP rose 0.1% in August, giving Rachel Reeves some momentum ahead of the critical November budget.
Growth in manufacturing, along with strong performance in the health sector, helped the UK economy recover.
Office for National Statistics’ figures on the UK GDP and growth
The Office for National Statistics shows July’s flat growth as a 0.1% decline, limiting UK three-month growth through August to 0.3%.
The ONS director of economic statistics, Liz McKeown, commented on today’s UK growth report, saying,
“Economic growth increased slightly in the latest three months. Services growth held steady, while there was a smaller drag from production than previously. Continued strength in business rental and leasing and healthcare were the main contributors to services growth, partially offset by weakness in some consumer facing services, while wholesalers also fared poorly.”
It also revealed that UK exports to the US fell by £700m, driven by declines in machinery, transport equipment, chemicals, and manufactured goods.
The ONS explained,
“The fall in exports of machinery and transport equipment was because of reduced exports of both aircraft and mechanical power generators (intermediate) to Germany, while the decrease in exports of chemicals was because of reduced exports of medicinal and pharmaceutical products to Germany and Ireland.”
Rachel Reeves is considering a series of tax increases in her November budget to close a £20–30bn spending gap that has emerged this year.
The figures aligned with a Reuters poll of City economists, which had predicted modest 0.1% growth in August, led mainly by a manufacturing rebound. The growth keeps Britain on track to meet IMF forecasts that it will be the second-fastest-growing economy in the G7 this year.
Economists forecast inflation to ease by year-end, with the Bank of England likely to cut interest rates further in 2026, easing pressure on household incomes.
Treasury’s stance on the UK growth and the economy
A spokesperson for the Treasury stated,
“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.”
They added,
“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.”
What did economists say about UK growth risks ahead of the Budget?
Raj Badiani, economics director at S&P Global Market Intelligence, said,
“UK economic growth is set to be muted in the next few quarters with private sector activity facing a damaging mix of external pressures, alongside increasing trepidation amid firms and consumers ahead of yet another difficult budget event. The latest short-term indicators suggest an end to the recent upward drift in the 2025 growth projection.”
He added,
“We expect UK real GDP growth to stand at 1.4% in 2025 and 1.0% in 2026. Despite persistent growth concerns, still-elevated earnings growth and the prospect of headline inflation rising to 4% in September are likely to rule out a further interest rate cut this year. The first-rate cut is expected to occur in February 2026 and the Bank rate to stand at 3.25% at the end of next year.”
Ruth Gregory, Capital Economics’ deputy chief UK economist, sees little prospect of stronger GDP growth ahead.
He added,
“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.”
Suren Thiru, economics director at ICAEW, described today’s growth figures as “anaemic.”
He said,
“This dishearteningly meagre return to growth will do little to allay fears over the wellbeing of the UK economy, with higher manufacturing output masking weaker activity in other sectors, notably services and construction. August’s increase is unlikely to have triggered a noteworthy pickup in economic growth across the third quarter with higher inflation and free-falling business confidence expected to have restrained output in September.”
Mr Thiru added,
“November’s Budget is casting a long shadow over the UK economy with growing worries over more tax rises likely to prompt greater caution among consumers and businesses to spend and invest throughout the Autumn. While a rate cut next month looks improbable, these anaemic figures mean it’s not quite a done deal as it gives those rate setters worried over economic conditions with more encouragement to vote to relax policy.”
Lindsay James, investment strategist at Quilter, said the economy appears to be “stumbling to the end of the year.”
She stated,
“In the week that the International Monetary Fund gave the UK’s economic growth forecasts a small bump up, today’s GDP figures paint a picture of an economy stumbling to the end of the year after a strong start. Monthly GDP grew just 0.1%, giving a three-month rate of 0.3% – not exactly exciting figures. Markets will have been hoping for signs that the UK can maintain it’s 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.”
Ms James added,
“There are a number of obstacles coming down the track for the economy too. The IMF confirmed the UK has an inflation problem and is struggling to get out of it. That will continue to put pressure on the consumer. Meanwhile, both businesses and individuals are fearful of what is coming at November’s budget after Rachel Reeves confirmed tax rises are being looked at. 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.”
IMF’s report on UK tax rises and the Budget
The IMF reports Britain is raising taxes at the fastest pace in the G7 under Rachel Reeves.
UK taxes are projected to rise sharply this Parliament, while similar countries keep rates steady or reduce the burden on households and businesses.
The IMF predicts British government revenues, mostly from taxes, will reach 40.6% of GDP by 2029, up from 38.3% in 2024 when Labour took office. The rise amounts to around £65bn in additional tax at current prices, surpassing levels seen in comparable large democracies.
The figures come ahead of Ms Reeves’ Budget, where she is expected to increase taxes on families and businesses by around £30bn.
