UK economy posts ‘meagre’ 0.1% growth in August as ‘pre-budget funk’ hits services sector – business live | Business
Check out our latest products
![[Upgraded] USB Computer /Laptop Speaker with Stereo Sound & Enhanced Bass, Portable Mini Sound Bar for Windows PCs, Desktop Computer and Laptops](https://m.media-amazon.com/images/I/61NAayKmVIL._AC_SL1500_.jpg)
UK economy grew by 0.1% in August.
Newsflash! The UK economy has returned to growth.
UK GDP is estimated to have grown by 0.1% in August, new data from the Office for National Statistics shows.
That will be a relief to chancellor Rachel Reeves.
But there’s bad news too – the economy is now thought to have shrunk by 0.1% in July, revised down from the initial estimate of no growth.
The ONS also reports that GDP grew by 0.3% in the three months to August 2025 compared with the three months to May 2025, a slight increase following growth of 0.2% in the three months to July 2025.
Key events
UK trade deficit widens as exports to US and EU fall
Britain’s trade deficit has widened, partly due to a drop in exports to the European Union and the US.
New trade data shows that UK exports to the United States fell by £700m in August, due to “falls in exports of machinery and transport equipment, chemicals and material manufactures.”
Shipments to Europe also fell, with UK exports to the EU decreasing by £800m in August 2025, due to a £500m fall in exports of machinery and transport equipment, and a £200m fall in chemical exports.
The Office for National Statistics explains:
The fall in exports of machinery and transport equipment was because of reduced exports of both aircraft and mechanical power generators (intermediate) to Germany, while the decrease in exports of chemicals was because of reduced exports of medicinal and pharmaceutical products to Germany and Ireland.
Kathleen Brooks, research director at XTB, says the UK is yet to benefit from the US trade deal agreed with much fanfare this year:
The ONS also reported that the total underlying trade deficit widened in August to £5.2bn, up £1.7bn, led by a rise in imports from the EU.
The UK’s favourable trade deal with the US is reaping no identifiable growth benefits as yet for the UK, the ONS reported that exports of goods to the US, including precious metals, was lower by £0.7bn. The trade deficit was down to trade in goods, where the deficit widened by £3bn in the three months to August, the trade in services surplus increased by £1.3bn in the same period.
Deutsche Bank: services and construction sectors have hit a pre-budget funk
Britain’s services and construction sectors have been hit by a “pre-budget funk”, warns Sanjay Raja, Deutsche Bank’s chief UK economist, amid uncertainty about Rachel Reeves’s fiscal plans.
Following today’s GDP report showing there was no services growth in August, while construction fell by 0.3%, Raja explains:
Industrial production expanded by 0.4% m/m, led in large part by stronger manufacturing growth (0.7% m/m). The bad news? Both the services and construction sectors have hit a pre-Budget funk.
The services economy was unchanged for a second consecutive month – this time, led by weaker transport and storage activity as well as weaker retail activity (particularly from lower new car registrations) and leisure services.
And construction output shrunk by 0.3% m/m, dragged down by lower repairs and maintenance work to end the summer.
Deutsche Bank now estimates growth in the third quarter of this year is tracking closer to 0.2% quarter-on-quarter – roughly half the pace pencilled in by the Bank of England.
Raja adds:
To be sure, the economy is now running at a lower gear after a strong start to the year….
We expect some turbulence to continue as we approach year-end. Indeed, the UK economy has yet to see the full ramifications of the US trade war. Budget uncertainty is hitting its peak too – likely dampening discretionary household and business spending.
Economists: “dishearteningly meagre return to growth” as economy “stumbles”
Economists are largely unimpressed by the modest growth of 0.1% recorded in the UK economy in August, and the 0.3% growth in June-August period.
Lindsay James, investment strategist at wealth management firm Quilter, says the economy looks to be “stumbling to the end of the year”:
“In the week that the International Monetary Fund gave the UK’s economic growth forecasts a small bump up, today’s GDP figures paint a picture of an economy stumbling to the end of the year after a strong start. Monthly GDP grew just 0.1%, giving a three-month rate of 0.3% – not exactly exciting figures. Markets will have been hoping for signs that the UK can maintain it’s early-year momentum but it appears that has now dissipated just as we approach a crunch Budget statement from the Chancellor. Rachel Reeves will need to find a tonic and quickly if she is to extricate the economy from its current malaise.
“There are a number of obstacles coming down the track for the economy too. The IMF confirmed the UK has an inflation problem and is struggling to get out of it. That will continue to put pressure on the consumer. Meanwhile, both businesses and individuals are fearful of what is coming at November’s budget after Rachel Reeves confirmed tax rises are being looked at. Last year showed just how much impact that uncertainty can have on economic growth and now this year appears as if it will be no different.
Suren Thiru, economics director at chartered accountancy group ICAEW, calls today’s growth figures ‘anaemic’:
“This dishearteningly meagre return to growth will do little to allay fears over the wellbeing of the UK economy, with higher manufacturing output masking weaker activity in other sectors, notably services and construction.
“August’s increase is unlikely to have triggered a noteworthy pickup in economic growth across the third quarter with higher inflation and free-falling business confidence expected to have restrained output in September.
“November’s Budget is casting a long shadow over the UK economy with growing worries over more tax rises likely to prompt greater caution among consumers and businesses to spend and invest throughout the Autumn.
“While a rate cut next month looks improbable, these anaemic figures mean it’s not quite a done deal as it gives those rate setters worried over economic conditions with more encouragement to vote to relax policy.”
Ruth Gregory, deputy chief UK economist at Capital Economics, reckons there is little reason to think GDP growth will accelerate much from here, explaining:
The meagre rise in real GDP in August suggests growth is still being hampered by high interest rates, higher taxes and soft overseas activity. With business sentiment on the floor and employment still falling, we doubt growth will improve much in Q4.
Raj Badiani, economics director at S&P Global Market Intelligence, is similarly cautious:
“UK economic growth is set to be muted in the next few quarters with private sector activity facing a damaging mix of external pressures, alongside increasing trepidation amid firms and consumers ahead of yet another difficult budget event. The latest short-term indicators suggest an end to the recent upward drift in the 2025 growth projection.
“We expect UK real GDP growth to stand at 1.4% in 2025 and 1.0% in 2026. Despite persistent growth concerns, still-elevated earnings growth and the prospect of headline inflation rising to 4% in September are likely to rule out a further interest rate cut this year. The first-rate cut is expected to occur in February 2026 and the Bank rate to stand at 3.25% at the end of next year.”
The UK’s consumer-facing services sector is struggling
Today’s GDP report also highlights weakness at service sector firms focused on consumers.
The UK’s consumer-facing services sector shrank by 0.6% in the three months to August, dragged down by:
-
travel agency, tour operator and other reservation service and related activities (down 7.6%)
-
other personal service activities (down 3.4%)
-
buying and selling, renting and operating of own or leased real estate, excluding imputed rent (down 1.0%)
Treasury: for too many people our economy feels stuck
Responding to today’s GDP report, a Treasury spokesman has conceded that the economy feels ‘stuck’, 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. Working day in, day out without getting ahead.
The Chancellor is determined to turn this around by helping businesses in every town and high street grow, investing in infrastructure and cutting red tape to get Britain building.”
Earlier this week the IMF predicted the UK would be the second-fastest growing member of the G7 for 2025, following a relatively fast start to the year.
ONS: Some consumer facing services were weak
Here’s ONS director of economic statistics Liz McKeown on today’s UK growth report:
“Economic growth increased slightly in the latest three months. Services growth held steady, while there was a smaller drag from production than previously.
“Continued strength in business rental and leasing and healthcare were the main contributors to services growth, partially offset by weakness in some consumer facing services, while wholesalers also fared poorly.”
Today’s GDP report shows there was no growth in the UK services sector in August or July, but it did expand by 0.4% in the three months to August.
UK GDP: the key charts
Production grew, but construction shrank
UK manufacturing drove growth in August.
Today’s GDP report shows that production grew by 0.4% in the month, whereas services showed no growth and construction fell by 0.3% in August.
UK economy grew by 0.1% in August.
Newsflash! The UK economy has returned to growth.
UK GDP is estimated to have grown by 0.1% in August, new data from the Office for National Statistics shows.
That will be a relief to chancellor Rachel Reeves.
But there’s bad news too – the economy is now thought to have shrunk by 0.1% in July, revised down from the initial estimate of no growth.
The ONS also reports that GDP grew by 0.3% in the three months to August 2025 compared with the three months to May 2025, a slight increase following growth of 0.2% in the three months to July 2025.
Introduction: UK GDP report coming up…
Good morning and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK economy is about to get its report card for August.
The latest monthly GDP report is expected to show only modest growth, with economists predicting an expansion of just 0.1% in August.
Although modest, that would be a small improvement on the previous month, as the economy flatlined in July.
Any growth will be welcome news for the government as chancellor Rachel Reeves works on the autumn budget; yesterday, she told The Guardian that higher taxes on the UK’s wealthy will form part of next month’s fiscal update.
There are hopes that UK manufacturing may have picked up in August, as Michael Field, chief equity strategist at Morningstar, explains:
“Manufacturing and industrial activity remain weak in the UK, with services doing a lot of the heavy lifting in terms of numbers thus far in 2025. Expectations are for August to show something of a reversal in this regard though, with industrial and manufacturing production likely to be positive for the month, potentially signalling some stability.
“Issues remain in the UK. Inflation remains high, as do interest rates, as the Bank of England awaits assurance that inflation is under control before cutting further. Equity markets are clearly anticipating an improvement though as they sit right below all-time highs.”
The agenda
-
7am BST: UK GDP report for August
-
7am BST: UK trade report for August
-
10am BST: Eurozone trade data for August
-
1pm BST: IMF Seminar: Debate on the Global Economy: “Shaping Economic Policies Amid a Shifting Global Landscape”
