The UK economy saw a small uptick in August, according to new official figures — just as attention turns to what Chancellor Rachel Reeves might announce in next month’s Budget.
The Office for National Statistics (ONS) reported a 0.1% rise in economic output, helped by a boost in manufacturing. However, July’s figure was revised down from flat growth to a 0.1% contraction, showing that the recovery remains fragile.
The government has repeatedly said it wants to get the economy moving again, but many analysts believe growth will stay sluggish until businesses and households see what’s coming in the Budget.
Economists expect that some combination of tax rises or spending cuts will be needed for Reeves to meet her fiscal rules.
The Institute for Fiscal Studies (IFS) estimates that Reeves will have to find about £22 billion to balance the books and stay within her borrowing limits. The think tank urged her to be “bold” — suggesting she build up a financial buffer now to avoid harsher measures later.
On Wednesday, Reeves hinted at what’s to come, saying she was “looking at further measures on tax and spending, to make sure that the public finances always add up.”
Her remarks were widely seen as confirmation that tax increases are on the table.
Where growth came from
Manufacturing was the bright spot in August, growing by 0.7%, but the UK’s dominant services sector — which includes retail, hospitality, and finance — showed no growth at all.
Because monthly GDP figures can swing sharply, the ONS also looks at longer-term trends. Over the three months to August, the economy grew 0.3%, a slight improvement on the 0.2% recorded for the previous three-month period.
“Economic growth increased slightly in the latest three months. Services growth held steady, while there was a smaller drag from production than previously,” said Liz McKeown, ONS director of statistics.
Experts warn: don’t get too excited
While the small uptick is a positive sign, most economists say it’s nothing to celebrate.
Yael Selfin, chief economist at KPMG UK, noted that households are still being squeezed by rising prices for essentials like food and energy. Meanwhile, uncertainty about possible tax rises in the Budget is making both families and businesses hesitant to spend or invest.
“As a result, we expect growth to remain sluggish over the coming months,” she said.
Ruth Gregory of Capital Economics called August’s rise “meagre” and pointed to higher employer National Insurance contributions introduced in April as another drag on growth.
She added that recent disruptions in the auto sector, such as the cyberattack on Jaguar Land Rover, may even have pushed the economy backward in September.
Inflation still a concern
Despite weak growth, the Bank of England is unlikely to cut interest rates next month. Inflation remains stubbornly high at 3.8%, and the Bank has made clear it wants to see stronger progress before easing monetary policy.
Earlier this week, the International Monetary Fund (IMF) predicted that the UK would be the second-fastest-growing G7 economy this year — but also warned that it will face the highest inflation rate among those nations in both 2024 and 2025.
Politics and pressure
A Treasury spokesperson highlighted the UK’s relative performance, saying: “We have seen the fastest growth in the G7 since the start of the year, but for too many people our economy feels stuck. The chancellor is determined to turn this around by helping businesses grow, investing in infrastructure, and cutting red tape to get Britain building.”
Opposition parties were quick to respond.
Shadow chancellor Mel Stride accused Reeves of preparing to “hike taxes yet again” despite previous promises, saying:
“If Labour had a plan – or a backbone – they’d get spending under control, cut the deficit, and get taxes down.”
Meanwhile, Liberal Democrat Treasury spokesperson Daisy Cooper said the government “is simply not doing enough to kickstart growth,” urging Reeves to “quit her slowcoach approach” and scrap the National Insurance hike.
Bottom line:
The UK economy may have eked out a small gain in August, but growth remains fragile, inflation stubborn, and political tensions high. All eyes are now on Chancellor Rachel Reeves and the decisions she’ll reveal in next month’s Budget — decisions that could shape the country’s economic path for years to come. Photo by Jim Goldsmith, Wikimedia common.