The UK economy bounced back in August after two months of stagnation, giving Chancellor Rachel Reeves a welcome boost ahead of her autumn budget.
According to the Office for National Statistics (ONS), the country’s gross domestic product (GDP) grew by 0.2% in August, aligning with the predictions of City economists. This modest recovery follows a period of zero growth in June and July, raising cautious optimism for the months ahead.
Liz McKeown, an ONS director of economic statistics, commented on the recent growth: “All main sectors of the economy grew in August, but the broader picture is one of slowing growth in recent months, compared with the first half of the year.”
McKeown highlighted key areas that contributed to the uptick, including accountancy, retail, and manufacturing.
“In August, accountancy, retail, and many manufacturers had strong months, while construction also recovered from July’s contraction. These were partially offset by falls in wholesaling and oil extraction.”
Liz McKeown
The overall growth rate for the three months leading to the end of August stood at 0.2%. However, this pace is slower than earlier in 2024 when the economy expanded by 0.7% in the first quarter and 0.5% in the second. This period of growth marked a recovery from the shallow recession seen at the end of 2023.
Investment Priorities in Focus
Chancellor Rachel Reeves has pledged that Labour’s first budget in over a decade will focus on boosting economic growth. Her plan includes prioritizing investment, improving household incomes, and addressing crumbling public services. However, Reeves has warned that difficult decisions will need to be made to keep the country’s finances balanced.
“It’s welcome news that growth has returned to the economy,” Reeves said. “While change will not happen overnight, we are not wasting any time on delivering on the promise of change.”
The chancellor also mentioned that the government will host a global investment summit next week to attract the world’s largest companies, aiming to create jobs and boost economic activity across the country.
The economy’s flatlining earlier in the summer was attributed to poor weather, which discouraged consumer spending, and ongoing pressures from high prices and elevated borrowing costs.
Business leaders are now keenly watching Reeves’ upcoming budget. Muniya Barua, deputy chief executive of the trade body BusinessLDN, emphasized the importance of the government’s tax and spending plans.
“All eyes will be on the chancellor to see how she intends to kickstart the economy after this latest data shows growth is still anemic. Businesses are looking for greater clarity from the government on their tax and spending plans in the budget so they can look to the future with more confidence.”
Muniya Barua
Inflation Eases, Rate Cuts Expected
In response to the economic landscape, the Bank of England began reducing interest rates in August, cutting them from 5.25% to 5%. While rates held steady in September, financial markets anticipate further cuts at the next policy meeting in November.
The ONS report provided some positive news across key sectors. The UK’s dominant service sector, which includes professional, scientific, and technical activities, saw output rise by 0.1%.
The production sector, which encompasses manufacturing, posted a 0.5% growth in August after a dip of 0.7% in July. The construction industry also saw a bounce back, expanding by 0.4% after a contraction of the same amount the previous month.
Despite these positive developments, both business and consumer confidence have taken a hit in recent months. Analysts point to the looming budget on 30 October, which is expected to be a challenging one.
David Bharier, head of research at the British Chambers of Commerce, stressed the importance of balancing fiscal responsibility with growth initiatives.
“The upcoming budget will be a critical moment. Businesses understand the fiscal backdrop the government is facing and the need to address public finances, but that must not be at the expense of investment and growth.”
David Bharier
As such, while the UK economy shows signs of recovery, the upcoming autumn budget will be critical in sustaining growth and restoring business and consumer confidence.
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