The British economy returned to growth in August, when it expanded by a minimal 0.1% compared to July, official data released today showed.
The British economy is on track to record the second fastest growth among the G7 countries in 2025 after the United States, the International Monetary Fund announced this week, daily Sabah recalls. But at 1.3% annual growth, it is not enough to avoid the need for tax increases in Chancellor of the Exchequer Rachel Reeves' budget.
Fergus Jimenez-England, associate economist at the National Institute for Economic and Social Research, a think tank, said early indicators for September point to limited growth in the third quarter.
“Recovering momentum depends on restoring business confidence and reducing uncertainty, which the government can help by setting aside a larger fiscal buffer in the upcoming budget,“ Jimenez-England said.
Sanjay Raja, chief UK economist at Deutsche Bank, said the data showed the services and construction sectors were in “pre-budget stagnation“ and he believes third-quarter growth will be about half the Bank of England's forecast of 0.4%.
“The UK economy has yet to see the full impact of the US trade war,“ Raja said. “Budget uncertainty is also peaking - likely constraining discretionary spending by households and businesses.“
Economists polled by Reuters ahead of the data release on Thursday had forecast GDP to grow 0.1% in August. In the three months to August, growth accelerated slightly to 0.3% from 0.2% in the three months to July, supported by the work of public health services, while consumer-facing services contracted, the ONS said.
Bank of England policymakers, who kept interest rates on hold at 4% in September, are trying to balance stubbornly high inflation with weak growth.
Governor Andrew Bailey said on Tuesday that the labor market was weakening and inflationary pressures were cooling after official data showed unemployment rose to its highest level since 2021 and private sector wage growth slowed.
Monetary Policy Committee member Alan Taylor said the British economy risked a “hard landing”, partly due to the impact of US President Donald Trump's trade tariffs.
Data released earlier this week showed weak retail sales growth, partly reflecting concerns about potential tax increases in Reeves' budget on November 26.