UK Economy Defies Expectations with August Growth
GDP expands by 0.1% as factory output drives unexpected rise, setting stage for Chancellor's Budget.
Sarah Connor
The UK economy grew by 0.1 per cent in August, surpassing earlier predictions.
Factory production emerged as a key driver of this economic expansion, contributing to the unexpected rise, even as consumer spending reportedly fell.
The services sector, however, remained flat in August; the construction sector reportedly declined by 0.2 per cent.
Liz McKeown confirmed that "GDP growth showed further strength in the latest three months, led by the services sector, while both production and construction fell."
The Office for National Statistics had previously revised its prediction for June's economic growth upwards, from 0.3 per cent to 0.4 per cent.
The UK recorded the strongest rate of growth in the G7 in the first half of 2026; the International Monetary Fund upgraded its UK growth forecasts for this year.
All of the talk around [Bangkok], as you know, is of resilience and how surprised many central banks and finance ministers have been with the health of the economy through this shock.
Sarah Breeden, speaking from Bangkok, highlighted a broader sense of economic resilience as the International Monetary Fund and the World Bank Group held their annual meeting there.
Breeden stated, "All of the talk around [Bangkok], as you know, is of resilience and how surprised many central banks and finance ministers have been with the health of the economy through this shock."
She attributed part of this resilience to businesses learning lessons from the 2022 energy shock, noting, "I think part of that is because the firms had learned the lessons from the energy shock of 2022."
Many businesses are now reportedly hedged, which means "the shock that they’re feeling now is less than it would otherwise have been," Breeden explained.
Breeden also pointed to the cascading impact of the AI boom, stating, "In addition, we’ve got the AI activity, the AI boom that’s happening, that’s cascading all around the world, and we’ll have some feed into… the UK businesses we talk to are thinking about adopting it, building data centres, even if not at the scale in the US, and all of that is supporting activity, which is what you’ve seen in this morning’s data."
Despite this economic resilience, consumers are reportedly suffering from rising prices; the Consumer Prices Index inflation recorded at 3.1 per cent in August.
Breeden acknowledged that "It is really clear that there are some people for whom this is a real challenge," noting the cost of living is definitely impacting people.
Chancellor John Healey is scheduled to deliver the Budget on October 28, facing the ongoing challenge of balancing the Budget without resorting to further borrowing.
Breeden concluded, "But what is encouraging is that I get the sense that, as we saw with the GDP data this morning, activity isn’t falling off a cliff, that the labour market is holding up through it and there’s a desire to absorb the shock rather than just pass it on, which makes our job as monitoring policy makers a bit easier in these uncertain times."