The UK economy managed to crawl forward by just 0.1% in August, according to data published by the Office for National Statistics. It’s not a recession, but it’s not anything to celebrate either.
This weak uptick came after July’s figures were revised, what was previously reported as flat growth has now been downgraded to a 0.1% decline. That followed a 0.4% rise in June. So, to sum up the past three months: up, down, and then barely up again.
The main driver of that microscopic August gain was a 0.4% increase in UK production. But services (the largest part of the economy) delivered absolutely nothing. Construction shrank by 0.3%, dragging down the overall result. The performance matched what economists had expected, but let’s be honest, the bar was already low.
Economists see second-half slowdown building
August’s numbers came as no shock to analysts who’ve been warning of a UK slowdown in the second half of the year. Third-quarter GDP, due out in mid-November, will likely show more of the same sluggishness. Sanjay Raja, chief UK economist at Deutsche Bank, summed it up: “Some course correction is likely after an excellent start for the UK economy.”
Raja said that after a strong first half, momentum is fading. “We expect growth to shift to a lower gear in the second half,” he added. Deutsche Bank now sees UK quarterly GDP running around 0.2%, but flagged downside risks.
For context, the UK economy grew by 0.7% in Q1 and by 0.3% in Q2, the latter boosted by businesses front-loading activity before U.S. trade tariffs kicked in back in April.
As for the Bank of England, all eyes are now on its next meeting scheduled for November 6. The question is whether the Monetary Policy Committee will cut interest rates again. Inflation remains the big roadblock.
Consumer prices rose 3.8% in August, still far from the BoE’s 2% target. And while inflation is cooling compared to 2022, progress has slowed.
That’s not the only pressure. The labor market is softening. Unemployment is up. Wage growth is easing. These factors could give the Bank some room to act, if they’re willing to risk inflation staying sticky.
But there’s a political twist too: the Autumn Budget drops on November 26. That means policymakers might hold off on more cuts until they see what Finance Minister Rachel Reeves is about to roll out.
Autumn Budget and inflation complicate rate path
Reeves is expected to announce new tax hikes and spending cuts, the kind of stuff that sucks the oxygen out of consumer demand. Businesses might pull back too. And with the economy already losing steam, timing becomes everything.
Scott Gardner, investment strategist at Nutmeg, said the latest GDP numbers could force the Chancellor to think twice. “This slowdown will concern policymakers and could make all the difference when it comes to tax and spending decisions,” he said Thursday.
Goldman Sachs echoed that caution in a note on Tuesday. Yes, there’s a case for more rate cuts, they said, but don’t expect them to happen fast. “The BOE is likely to want to see more progress on inflation before cutting rates again,” Goldman wrote. After all, the central bank only just lowered the benchmark rate to 4% back in August.
Goldman pointed to one specific red flag: services inflation. Stripping out the noise from volatile and regulated prices, underlying inflation in services has stalled. That’s a bad sign. And with food prices still adding upward pressure, headline inflation is expected to hover around 4% through the end of 2025.
The investment bank said it expects services inflation to drop meaningfully in the first half of 2026, but until then, they believe the BoE will sit tight. “The MPC is likely to wait with more cuts until they see tangible progress in services inflation,” the note said.
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Source: https://www.cryptopolitan.com/uk-economy-ekes-out-0-1-growth-in-august/
