The UK economy grew by 0.1 per cent in August, defying forecasts from economists who had predicted a contraction of 0.1 per cent in the same period.
A Bloomberg poll of economists had anticipated a decline, making the official figures a notable surprise for markets and policymakers watching the trajectory of British growth.
The production sector was the primary driver of August’s expansion, recording growth of 0.8 per cent and offsetting weakness elsewhere in the economy.
Services, the largest and most dominant sector in the UK economy, recorded no growth during August, while construction activity fell by 0.2 per cent in the same month.
Over a rolling three-month period, the UK economy grew by 0.7 per cent, painting a stronger picture of overall momentum than the monthly figures alone suggest.
“GDP growth showed further strength in the latest three months,” said Liz McKeown, economic statistics director at the ONS, pointing to upward revisions for June and July.
“Upward revisions to already strong services growth in June and July helped drive robust growth across the three months, despite services showing no growth in August,” McKeown added.
McKeown also noted that longer-term strength in services was visible “not just in computer programming but across a range of business-facing industries, including legal services, research and development, and advertising.”
Growth in July was confirmed at 0.4 per cent, which had smashed market expectations at the time, while the June figure was upgraded by 0.1 percentage point.
The ONS published strong figures for the first two quarters of the year, with GDP expanding 0.6 per cent in the first quarter and 0.5 per cent in the second.
The August slowdown comes at a sensitive moment for Chancellor John Healey, with a closely watched Budget just two weeks away and speculation that his fiscal headroom has narrowed considerably.
The Bank of England’s Monetary Policy Committee is expected to raise interest rates in November, a move that could further weigh on economic momentum heading into the end of the year.
Yael Selfin, chief economist at KPMG, warned that households faced “renewed pressure from rising wholesale natural gas prices and higher long-term interest rates,” which would dampen activity in coming months.
“Against this backdrop, the Chancellor may feel inclined to take a cautious approach at the upcoming Budget, keeping net borrowing on a declining path as a share of GDP whilst avoiding major tax rises,” Selfin said.
Lord Jim O’Neill, the former Goldman Sachs executive and ally to Andy Burnham, cautioned that any tax increase at the Budget “needs to be really thought through more carefully than before.”
O’Neill suggested the UK economy could be running at two per cent annualised growth, a level not seen since before the 2008 financial crisis, based on the strong first-half performance.
Business leaders have called on Healey to focus on easing hiring costs and reducing energy bills as part of his broader ambitions to re-industrialise Britain.
Burnham and Healey told bosses they would lead the “most pro-business country in the world,” with conversations among attendees reported to have centred on youth unemployment.
Paul Dales, chief UK economist at Capital Economics, noted that businesses were performing well while households were “becoming more circumspect” given weaknesses in consumer-facing services.
“Some of those could just be further reversals of the earlier boosts from the World Cup and the unusually hot weather. Or it could be a sign that higher fuel and utility prices are prompting households to trim their spending on other items,” Dales said.