The UK economy grew as expected in August but remains in a low gear, which many attribute to caution from businesses and consumers ahead of next month's Budget.
Gross domestic product grew 0.1% in August compared to the month before, in line with economists' expectations, though July’s flat reading was revised down to a decline of 0.1%.
Over the three months to August, the economy expanded by 0.3%. However, the update was marked by downward revisions and continued signs of weakness across key sectors.
Industrial production rose 0.4%, supported by a 0.7% increase in manufacturing output.
But services – the UK’s largest sector – showed no growth for a second consecutive month, held back by lower activity in transport, leisure, and retail, including weaker new car registrations.
Construction fell by 0.3%, dragged down by reduced maintenance and repair work.
Economists remain cautious. The National Institute of Economic and Social Research (NIESR) said the figures reflect "fragile demand conditions," cutting its third-quarter forecast to 0.3%.
With Septemer data still to arrive, Deutsche Bank economist Sanjay Raja said he expects just 0.2% of growth for Q3, warning the economy is now “running at a lower gear.”
Liam Daly at Cebr highlighted stagnant output from the services sector, the cornerstone of the economy, with no growth for the second consecutive month, "a signal that dampened consumer spending is weighing on momentum".
He said: "Unlocking faster growth remains the number one priority for the Government as it seeks to balance the books in the upcoming Budget, a task made harder by the prospect of a downgraded OBR productivity forecast and elevated government borrowing costs."
Cebr forecasts annual growth of 1.4% this year and 1.2% in 2026.
Ebury’s Matthew Ryan called the GDP in August "barely noticeable growth", citing Budget uncertainty and lingering inflation pressures.
He said that Chancellor Rachel Reeves "faces an uphill battle to plug the fiscal gap and reassure markets that she has a credible plan for growth".
An amalgam of tax increases is expected in the Budget, though investors, economic thinktanks and other MPs have been clamouring for commitments to at least mild spending cuts, which could limit the hit to growth in 2026, as well as major reforms such as to council taxes.