The Office for National Statistics reported that the UK economy grew by 0.1% in August, defying analysts’ forecasts of a slight contraction and landing at a politically sensitive moment: two weeks before Chancellor John Healey delivers his first Budget, and days after the International Monetary Fund upgraded its forecast for the British economy.
Healey was quick to frame the numbers as vindication of the government’s fiscal approach. Speaking to the BBC, he described the performance as “a sign of resilience in the UK economy that some had not expected,” and linked it directly to the discipline the IMF has endorsed. “It’s part of the discipline the IMF here in Bangkok this week has endorsed that they see in Britain,” he said. The figures were released after he landed in the Thai capital for the fund’s annual meeting, where managing director Kristalina Georgieva had earlier praised the UK’s plans to cut debt levels at a time of rising global borrowing costs, noting the country was seeing “a bit of a better growth prospect” than other G7 nations.
The chancellor offered no specifics on what measures the Budget will contain, but promised that “where we can take action, we will,” saying he wanted “to give people a bit of breathing space from the cost of living and cost of business pressures.” He paired that commitment with a pledge of fiscal restraint: “where we want to do things we have to make sure we can pay for them within the Budget that we’ve got and control spending.” He also acknowledged that “it’s really tough in the face of these economic global shocks,” and said that, despite conflicts in the Middle East and Europe, “today’s figures offer more proof of Britain’s resilience in the face of these global shocks.”
The statistical picture behind the political claims is mixed. The economy grew by 0.7% in the three months to August, and August’s expansion follows growth of 0.4% in July, with the ONS upgrading its estimate for June from 0.3% to 0.4%. Liz McKeown, the ONS director of economic statistics, said computer programming had been the biggest contributor to what she described as “robust” growth over the three-month period. Within the month itself, production, which includes manufacturing, oil and gas extraction and energy supply, drove the increase, while services, the largest part of the economy, was flat and construction contracted. Over the three months, production and construction both shrank.
Those sectoral weaknesses have become the focus of the opposition’s critique of the government’s economic stewardship. The Conservatives said the figures “conceal worrying trends in key sectors as we approach a crucial Budget.” Shadow chancellor Andrew Griffith pointed to construction, saying it “has now shrunk for four months in a row, with private housebuilding falling fastest,” and argued that “Labour promised to get Britain building, but they are failing.” He called on Healey to cut taxes and reduce red tape. The Liberal Democrats were equally dismissive, with Treasury spokesperson Daisy Cooper describing the 0.1% August figure as “nothing to celebrate” and saying “the economy is stuck in first gear and barely crawling forward, while families are still struggling to make ends meet.”
Independent analysts, meanwhile, offered a more measured read. Paul Dales, chief UK economist at Capital Economics, said the economy was “more robust than we thought,” while cautioning that an expected rise in inflation would still “dampen growth,” even as the economy showed “remarkable resilience to higher energy prices and borrowing costs.” PwC senior economist Jake Finney attributed the relatively strong performance partly to the development of AI infrastructure, noting that “the UK still lags the US in both the scale of that investment and the boost it provides to growth, but it is making progress and remains ahead of many of its European peers.”
Healey himself flagged artificial intelligence as a policy priority, telling the BBC that “the impact of AI on the economy, on productivity, is only just beginning to register.” He said the technology carries “huge potential, as well as huge risks,” and that Britain’s priority would be ensuring AI is developed safely while unlocking the opportunities it presents. How the chancellor balances that ambition against his pledge to fund everything within existing Budget constraints will become clear when he sets out his fiscal plans in two weeks’ time.