The UK economy grew unexpectedly in August after a boost in the production sector, according to official statistics, even as growth slowed across the country.
GDP expanded by 0.1 per cent in August following several months of high growth. A poll of economists by Bloomberg predicted that the UK economy had contracted by 0.1 per cent in August.
Figures were driven by growth of 0.8 per cent in the production sector. Services, the most dominant sector in the country, did not increase activity while construction fell by 0.2 per cent.
Over a three-month period, the UK economy grew by 0.7 per cent.
“GDP growth showed further strength in the latest three months,” ONS economic statistics director Liz McKeown said.
“Upward revisions to already strong services growth in June and July helped drive robust growth across the three months, despite services showing no growth in August.
“Looking at the longer-term picture, compared with the same three-month period a year ago, the increased strength now seen is services is evident not just in computer programming but across a range of business-facing industries, including legal services, research and development, and advertising.”
The latest data set appears to bring an end to a high growth streak in the UK economy at a crucial time for Chancellor John Healey, two weeks out from a difficult Budget where it is believed his fiscal wriggle room has narrowed. The Bank of England could also further dampen momentum as its Monetary Policy Committee is expected to raise interest rates in November.
Statisticians said growth in July was 0.4 per cent, smashing market expectations at the time. While estimates for July remained unrevised, a figure for June was upgraded by 0.1 percentage point.
The ONS also published strong figures in the first two quarters. Growth in the first three months of the year came to 0.6 per cent while an expansion in GDP of 0.5 per cent was posted for the second quarter of the year.
Yael Selfin, chief economist at KPMG, said households now faced “renewed pressure from rising wholesale natural gas prices and higher long-term interest rates”, which would dampen activity in the coming months.
“Against this backdrop, the Chancellor may feel inclined to take a cautious approach at the upcoming Budget, keeping net borrowing on a declining path as a share of GDP whilst avoiding major tax rises,” she said.
Warnings for Healey on UK economy
Healey has been warned against stifling momentum in the UK economy seen in the first half of the year ahead of any heavy tax rises at the BUdget.
Lord Jim O’Neill, the former Goldman Sachs executive who is an ally to Andy Burnham, said any tax increase at the Budget “needs to be really thought through more carefully than before”.
He suggested the UK economy could be running at two per cent growth on an annualised basis due to a strong performance in the first half of the year. This would bring it to levels not seen since before the financial crisis in 2008.
Business chiefs have also called on the Chancellor to focus on easing hiring costs and lowering energy bills in order to boost his hopes of re-industrialising Britain.
Burnham and Healey told bosses on Tuesday they would lead the “most pro-business country in the world”.
Conversations centred on youth unemployment, according to attendees.
Paul Dales, chief UK economist at Capital Economics said businesses were performing well while households were “becoming more circumspect” given weaknesses in consumer-facing services.
“Some of those could just be further reversals of the earlier boosts from the World Cup and the unusually hot weather. Or it could be a sign that higher fuel and utility prices are prompting households to trim their spending on other items,” Dales said.