Chancellor Rachel Reeves has been put under further pressure ahead of next month’s Budget after official figures showed muted growth in August following a surprise contraction in July.
The Office for National Statistics (ONS) said gross domestic product (GDP) rose by 0.1% month-on-month in August and fell by 0.1% in July, in a revision to the previous estimate for no growth.
In the three months to August, GDP grew by 0.3% compared with 0.2% growth in the three months to July, the ONS said.
The latest figures come after the International Monetary Fund (IMF) earlier this week forecast UK inflation was set to surge to the highest in the G7 in 2025 and 2026.
While the influential economic body increased its UK growth forecast for this year, it reduced the prediction for 2026 amid concerns over the labour market.
The GDP data compounds the dilemma facing Ms Reeves as she prepares for a challenging November 26 Budget, with faltering growth adding to the headache and making it harder to fill the black hole in the nation’s finances.
Speculation is continuing to mount over impending tax hikes and spending cuts to address the public finance woes.
An HM Treasury spokesperson said: “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.”
The ONS figures showed the services sector recorded no growth in August, while construction contracted by 0.3%, but manufacturing helped the economy grow overall, with the sector seeing expansion of 0.7%.
Liz McKeown, director of economic statistics at the ONS, said: “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.”
Rob Wood, at Pantheon Macroeconomics, said the economy was now on course for growth of 0.2% in the third quarter, but that this would be sharply below the Bank of England’s prediction for growth of 0.4%.
He also said a lower-than-forecast out-turn for the third quarter was “unlikely to be enough to prompt a rate cut in November, given CPI inflation likely to rise to 4%, with risks it hits 4.1%, in September data due next week”.
He was now predicting a cut in February 2026, from 4% to 3.75%.
Sanjay Raja, Deutsche Bank’s chief UK economist, said the economy was “now running at a lower gear after a strong start to the year”.
He said: “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.”
