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UK economic growth sends mixed-signals as Budget looms

Though gross domestic product (GDP) picked up in August, the government has been left grappling with a slowing economy ahead of this month's Budget.

Office for National Statistics figures on Friday showed the UK economy ticked up by 0.2% as expected in August, or by 1.0% when compared to a year earlier.

However, this followed successive stagnant months in June and July, meaning economic growth had slowed against the first half of the year.

Omnis Investments strategist Patrick O'Donnell noted this was not a concern, given some "normalisation was to have been expected" following "unsustainable growth" earlier.

It did mean the UK economy was "a picture of stagnation rather than healthy growth" ahead of the October 30 Budget, however, Charles Stanley analyst Rob Morgan pointed out.

“The government needs to think long and hard about how to kickstart a steeper economic trajectory,” he commented.

XTB analyst Kathleen Brooks echoed the view, adding the slower rate raised questions over whether the government would now make the Budget more pro-growth.

She highlighted the figures showed just some sectors enjoying “especially strong growth,” such as accountancy, retail and manufacturing, as the likes of oil production were weaker and service growth “barely budged”.

Services are “usually the mainstay of British growth,” Brooks commented, noting weakness in wholesale retail, alongside the arts, entertainment and recreation sector, had weighed.

Speculation has built over a rapid uptick in investment spending by Chancellor Rachel Reeves through the Budget.

Think Tank the Institute for Fiscal Studies warned earlier this week that some £25 billion would need to be raised through the likes of higher taxes to support such pledges.

Brooks and Morgan pointed to growing caution among businesses over possible tax hikes as a result, arguing this may have dented confidence and fed through to slower growth.

"Chancellor Reeves would be wise to use this Budget to boost UK economic growth," Brooks said, "however, she has an almost impossible balancing act to perform".

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