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UK GDP: An Economy Adrift

UK GDP rose 0.1% month-on-month in August, following a fall of 0.1% in July. In line with expectations:
GDP rose 0.3% in the three months to August
Services showed no growth month-on-month
Construction output fell by 0.3% month-on-month
Production output grew by 0.4% month-on-month

Image by Pexels from Pixabay

A fractional rise in GDP of 0.1% for August coupled with a revised fall of 0.1% in July sums up the UK’s rudderless economy at the current time, neither sinking nor sailing.

With only production showing growth in August, it was always going to be a challenge to see anything that resembled a satisfactory outcome. Services, the engine of UK economic growth stalled showing no growth whatsoever.

With HMS Brittania firmly off economic course, fiscal policy is going to be the likely lever required to chart a course back to safer waters. However, uncertainty reins, and until the spectre of the budgetary iceberg passes, UK PLC is likely to remain cautious and the economy certain to drift into stagnant waters.

Isaac Stell, Investment Manager at Wealth Club

Anna Leach, Chief Economist at the Institute of Directors, said:

“At headline level, the economy held up reasonably well over the summer, with steadier growth replacing the tariff-driven momentum seen earlier in the year. But the underlying picture is more mixed. Consumer services picked up slightly in August, helped by retail, yet the three-month trend remains negative as households see real income gains eroded by persistent inflation and weak confidence ahead of the Budget. Manufacturing output, meanwhile, remains flat and volatile, reflecting the pressure of a challenging global environment, alongside domestically-driven cost pressures.

“The underlying trends in construction are particularly worrying. The sector is already contending with acute skills shortages, rising costs and long delays at the Building Safety Regulator. Added uncertainty over potential housing tax changes in the forthcoming Budget is further weighing on housing demand. Unlocking infrastructure and housing delivery is critical to the UK’s growth future. The Budget must tackle systemic barriers head-on - accelerating planning reform, strengthening skills support, alleviating cost pressures and delivering long-term stability for the industry.”

Today’s figures confirm that growth over the summer was slower than during the first half of the year. Activity remains patchy across sectors, with many businesses reporting subdued demand and higher operating costs. And firms are choosing to sit tight on hiring and investment until there’s more clarity on the policy outlook.

“The Budget provides a critical opportunity for the government to reaffirm its commitment to growth. Going further on planning reform is a positive first step and firms will be looking for further supportive interventions on November 26th. This includes delivering the strategic reforms required to simplify the tax system, positioning business to invest in the skills they need through a fully flexible Growth and Skills Levy and exploring further measures to address the UK’s high energy costs.

Ben Jones, CBI Lead Economist

Stuart Morrison, Research Manager at the British Chambers of Commerce said:

“Today’s data shows the economy picking up slightly, driven by services and construction. That will be welcomed by business, ahead of what is expected to be a challenging Budget next month.

“However, growth of 0.3% in the three months to August, and 0.1% in the month itself, won’t settle the long-standing concerns of the firms we represent.

“Our latest survey shows business confidence and investment levels continue to suffer. A fifth of firms are expecting lower turnover over the next year, and a quarter have scaled back investment plans.

“For the last twelve months, SMEs have told us the same story: rising costs, weak investment, and little sense of relief on the horizon.

“All eyes will be on the Chancellor’s make-or-break Budget next month. Our message is simple – no more taxes on business. Growth will only improve if business confidence improves, and that won’t happen if more cost pressures are piled on firms. The Chancellor must also use her statement to tackle the skills crisis, support exports and turbocharge infrastructure projects.”