The UK economy returned to growth in August after flatlining for two months, driven by expansion in the services, manufacturing and construction sectors.
The Office for National Statistics (ONS) said that gross domestic product (GDP) grew by 0.2% during the month. The expansion follows two months of zero growth experienced in June and July, and was in line with analyst forecasts.
ONS director of economic statistics Liz McKeown said: “All main sectors of the economy grew in August, but the broader picture is one of slowing growth in recent months, compared to the first half of the year.
“In August accountancy, retail and many manufacturers had strong months, while construction also recovered from July’s contraction. These were partially offset by falls in wholesaling and oil extraction.”
The services sector was the main contributor to growth, up 0.1% in August after a similar rise in July.
Meanwhile, the smaller production sector swung to 0.5% growth after a 0.7% contraction in July, revised from a 0.8% estimate in last month’s figures.
Construction output grew by 0.4% in August, following an unrevised fall of 0.4% in July, and grew by 1% in the three months to August 2024.
The ONS estimated that the economy also grew by 0.2% in the three months to August. Officials confirmed there were no revisions to its previous estimates of zero growth in both June and July.
Chancellor Rachel Reeves said: “It’s welcome news that growth has returned to the economy.
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“Growing the economy is the number one priority of this government so we can fix the NHS, rebuild Britain, and make working people better off.
“While change will not happen overnight, we are not wasting any time on delivering on the promise of change.
“Next week hundreds of the world’s biggest businesses will come to Britain as we deliver on our promise to bring investment, growth, and jobs back to every part of the country.”
The figure from the ONS comes less than three weeks before the Labour government’s first budget.
Alice Haine, personal finance analyst at Bestinvest, said: “August’s 0.2% expansion is likely to be comforting for the new government as it looks towards its first budget on 30 October when chancellor Rachel Reeves is expected to deliver a raft of ‘painful’ tax rises.
“The positive growth figure may even help to quell the government’s doom-mongering about the state of the country’s finances, something that has had a detrimental effect on business and consumer confidence in recent weeks.”
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Yael Selfin, chief economist at KPMG UK, suggested the return to growth could lead the Office for Budget Responsibility to upgrade its forecasts.
She said: “This will provide a timely boost for the chancellor amidst a backdrop of growing spending pressures.
“Growth in the consumer facing sectors coincides with recently revised consumer spending and savings data, which suggests that households have been less cautious than previously thought. We expect consumer spending to be underpinned by further interest rate cuts and a potential pick-up in consumer sentiment.”
The ONS also said that the UK’s total underlying trade deficit widened by £3bn to £10bn in the three months to August 2024, driven by an increase in imports of goods.
Nicholas Hyett, investment manager at Wealth Club, said the figures put the Bank of England in a complicated position.
He explained: “This is all welcome news for the Treasury ahead of the budget which is expected to see taxes rises, potentially slowing economic activity. It does raise a conundrum for the Bank of England though.
“The Bank had been eyeing up further interest rate cuts, but the economy doesn’t look like it’s crying out for more monetary support and with inflation expected to accelerate again into Christmas, rate setters might be thinking it makes sense to sit on their hands a little while longer.”
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