UK economy returns to growth in August

The UK economy returned to growth after two months of stagnation, expanding by 0.2 per cent in August.
Official figures showed month-on-month growth was in line with economists’ expectations and up from the 0 per cent recorded in June and July. Growth also rose by 0.2 per cent of gross domestic product over a rolling three-month period to August and was up by 0.8 per cent over the year.
August’s expansion was driven by an unexpected 1.1 per cent increase in manufacturing output and a 0.4 per cent rise in output in the construction sector, after both industries bounced back from declines in July. The dominant services sector, which makes up three quarters of the UK economy, recorded growth of 0.1 per cent in August, matching the rate in the previous month, according to the Office for National Statistics (ONS).
Half the 14 subsectors of the services economy, including scientific, technical and professional services led by accountancy, also rose in August.
The UK’s economic growth has cooled in recent months after a strong rebound from recession at the start of the year, when output rose by 0.7 per cent and 0.5 per cent in the first and second quarters respectively.
Economists expect GDP to expand by 0.2 to 0.3 per cent in the last two quarters of the year, bringing the annual growth rate to 1.1 to 1.2 per cent, below the government’s target to make the UK the fastest growing economy in the G7. The US is expected to expand by 2.6 per cent this year.
“All main sectors of the economy grew in August but the broader picture is one of slowing growth in recent months, compared to the first half of the year,” Liz McKeown, director of economic statistics at the ONS, said.
Economists have warned that growth may falter again in September, after a host of surveys from businesses and households have shown a decline in confidence triggered by warnings from the government about its “tough choices” at the budget on October 30.
Ben Jones, lead economist at the CBI, said: “Our surveys suggest that businesses may have tapped the brakes again in September amid speculation over potential budget announcements. Anecdotally it’s clear that some firms have paused hiring and investment decisions pending more clarity over the direction of the new government’s economic policies.”
Rachel Reeves welcomed the August GDP figures: “Growing the economy is the No 1 priority of this government so we can fix the NHS, rebuild Britain and make working people better off. While change will not happen overnight, we are not wasting any time on delivering on the promise of change,” she said.
The return to growth in August coincided with the first interest rate cut in four years at the start of the month. Another monetary loosening of a quarter percentage point is expected next month. Consumers are benefiting from a gradual decline in borrowing costs and mortgage rates and a fall in consumer price inflation to 2.2 per cent in August. Inflation is on course to drop further to 1.9 per cent in September, lifting households’ real income growth.