UK economy unexpectedly grows in August

The UK economy grew by 0.1% in August, confounding forecasts of a small contraction, despite a fall in consumer spending as households were squeezed by higher fuel and energy costs.

Figures from the Office for National Statistics showed growth slowing from 0.4% in July. City economists had expected a 0.1% fall.

Factories lead the way

The surprise came from production, which includes manufacturing, mining and energy, and grew by 0.8%. The services sector, which makes up most of the economy, was flat, and construction fell by 0.2%.

Consumer-facing services fell by 0.3%, after a 0.1% fall in July. The biggest drags were sports, amusement and recreation, and food and drink services. Analysts said that could reflect the end of a boost from the World Cup and the unusually hot weather, or households cutting back.

The bigger picture

Over the three months to August, the economy grew by 0.7%. Compared with a year earlier it was 2.1% larger, the strongest annual growth since August 2022. The UK had the strongest growth in the G7 in the first half of 2026, helped by business investment, particularly in computer equipment linked to building AI infrastructure.

Speaking from the IMF meetings in Bangkok, the chancellor, John Healey, said: "Despite conflicts in the Middle East and Europe hitting people across the world, today's figures offer more proof of Britain's resilience in the face of these global shocks."

Sanjay Raja, chief UK economist at Deutsche Bank, said: "It's hard to overstate how strong the UK performance has been all year."

Will it last?

Many economists expect momentum to fade towards the end of the year. Matt Swannell, chief economic adviser to the EY Item Club, said: "We're sceptical this strength can last. Some pullback looks inevitable. Higher energy bills and petrol prices are pushing up inflation and hitting consumers' spending power."

Financial markets expect the Bank of England to raise interest rates next month from 3.75% to 4%, followed by four more quarter-point rises in 2027.

The budget

The figures come less than two weeks before Healey's first budget on 28 October. He is under pressure to help households and businesses with rising energy bills, while government borrowing costs have risen sharply.

What GDP means

Gross domestic product measures the value of everything produced in the economy. Monthly figures can swing because of one-off events such as weather, strikes or sporting tournaments, which is why economists pay more attention to the three-month trend. Even so, a growing economy supports jobs and wages and brings in more tax, giving the chancellor a little more room at the budget.

Manufacturing remains important to Birmingham, where engineering, car parts and food production employ thousands of people.