The UK economy returned to growth in August after flatlining for two months, in a boost for the chancellor, Rachel Reeves, before the autumn budget.
The Office for National Statistics (ONS) said that gross domestic product rose by 0.2% in August, after recording zero growth in June and July. The reading matched the forecasts of City economists.
Liz McKeown, an ONS director of economic statistics, said: “All main sectors of the economy grew in August, but the broader picture is one of slowing growth in recent months, compared with the first half of the year.
“In August, accountancy, retail and many manufacturers had strong months, while construction also recovered from July’s contraction. These were partially offset by falls in wholesaling and oil extraction.”
Growth over the broader three months to the end of August also rose by 0.2%. The rate of expansion is slower than in the first two quarters of 2024, when the economy grew by 0.7% and 0.5% respectively after exiting a shallow recession at the end of 2023.
Reeves has promised to use Labour’s first budget in more than a decade to reboot economic growth, with a plan to prioritise investment, alongside measures to increase household incomes and repair crumbling public services. However, she has also warned that tough decisions will be required to balance the books.
The chancellor said the government would next week host its global investment summit to encourage the world’s biggest businesses to spend in Britain to bring jobs and activity to every part of the country.
“It’s welcome news that growth has returned to the economy,” Reeves said. “While change will not happen overnight, we are not wasting any time on delivering on the promise of change.”
Growth had flatlined earlier in the summer as wet weather deterred consumer spending, while households remained under pressure from high prices and elevated borrowing costs.
“All eyes will be on the chancellor to see how she intends to kickstart the economy after this latest data shows growth is still anaemic,” said Muniya Barua, the deputy chief executive at the trade body BusinessLDN.
“Businesses are looking for greater clarity from the government on their tax and spending plans in the budget so they can look to the future with more confidence.”
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After the return of inflation to more normal levels, the Bank of England started cutting interest rates in August, with a reduction from 5.25% to 5%. It held rates steady in September but is widely expected in financial markets to cut borrowing costs at its next policy meeting in November.
The latest snapshot from the ONS showed output in Britain’s dominant service sector rose by 0.1% in August, powered by professional, scientific and technical activities. The production sector – which includes manufacturing – returned to growth with a rise in output of 0.5%, after a fall of 0.7% in July. Construction activity also rebounded from a fall of 0.4% a month earlier with an expansion of the same rate in August.
Business and consumer confidence has fallen in recent months amid warnings of a “painful” budget on 30 October.
David Bharier, the head of research at the British Chambers of Commerce, said: “The upcoming budget will be a critical moment. Businesses understand the fiscal backdrop the government is facing and the need to address public finances, but that must not be at the expense of investment and growth.”