UK Economy Bounces Back in August, But Budget Worries Loom

The UK economy showed signs of resilience in August, returning to growth after a slight dip in July. However, the initial optimism was tempered by mounting concerns about the upcoming budget, which could weigh on future economic performance, Bloomberg reports.

According to data released by the Office for National Statistics, GDP rose 0.2% in August, meeting economists’ expectations. The growth was driven by expansions in services, production, and construction sectors. This performance suggests the economy is on track for growth in the third quarter, although at a slower pace than the first half of the year.

However, the outlook for September remains uncertain. A series of warnings from the government about the state of public finances has dampened sentiment, with consumer confidence falling at its fastest rate since the start of the Ukraine war. Business leaders are also expressing their highest levels of concern in two years, according to the Institute of Directors.

The pound sterling was relatively unchanged following the release of the data, down less than 0.1% to $1.3051. The currency has depreciated by nearly 3% since reaching a two-year high at the end of September, as traders anticipate potentially faster rate cuts from the Bank of England.

The Labour government is relying on sustained economic growth to fund its pledge to improve deteriorating public services. Prime Minister Keir Starmer aims to boost GDP growth to 2.5% annually, a target that appears ambitious given the economy’s recent performance. However, factors such as falling interest rates, rising real incomes, and planned government investment spending could provide support in the coming year.

The August growth was driven by expansion in all three main sectors: services (0.1% growth), construction (0.4% growth), and production (0.5% growth). Notably, manufacturing rebounded strongly from a July decline, expanding 1.1% in August.