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Healey Says Surprise UK Growth of 0.1% in August Shows Resilience

Official figures show 0.7% growth over three months to August, and the IMF has upgraded its UK forecast ahead of the Chancellor's first Budget

By AXY Business Desk ·

Reporting via BBC Business
Reporting via BBC Business (BBC Business)

Key points

Britain's economy grew by 0.1% in August, defying analysts' expectations of a slight contraction, and Chancellor John Healey described the stronger-than-expected performance as a "sign of resilience" ahead of his first Budget, which he will deliver in two weeks' time. The latest official figures, published by the Office for National Statistics, also showed the economy expanded by 0.7% over the three months to August. Speaking to the BBC, Healey said it was "really tough in the face of these economic global shocks", but argued that the result showed the UK could withstand pressure better than some had expected.

The figures come at a sensitive moment for the government. Healey has signalled that he wants to ease pressure on households and businesses in the Budget, but he has also made clear that any spending must be paid for within the limits the government has set itself. The August data therefore gives the Chancellor a more favourable backdrop for a Budget that has to balance two competing demands: relief for people struggling with living costs, and credibility with markets and the public that the public finances are under control.

What the latest figures show

The monthly reading is the most recent snapshot of gross domestic product, or GDP, which is the total value of goods and services produced across the economy. When GDP rises, the economy is growing. When it falls for two consecutive quarters, economists usually describe the economy as being in recession. Monthly figures can be volatile, which is why statisticians and economists often look at the three-month figure alongside them. The reported 0.7% rise over three months gives a broader view than the 0.1% gain recorded for August alone.

According to the figures reported by the BBC, the main driver of the August increase was production. That category includes manufacturing, oil and gas extraction and energy supply. Production rose during the month, which helped lift the overall total. The services industry, which makes up the largest share of the UK economy, was flat over the same period. Construction, the sector that covers building and civil engineering work, contracted.

This mix matters. Because services account for such a large share of total output, a flat services sector is significant on its own. In August, the overall gain depended heavily on factories, energy and resource extraction rather than on the broad range of shops, offices, hospitals, hotels and other service businesses that employ most people in the country. The contraction in construction adds to the picture of an economy where the strength was concentrated in fewer areas.

Why the result surprised forecasters

Before the release, analysts had expected a slight contraction, meaning a small fall in output. Economists build such forecasts from a range of indicators, including business and consumer surveys, retail sales data and earlier official statistics. Forecasts are estimates rather than certainties, and they are often revised once the official figures arrive. A result that beats expectations is therefore notable, but it does not by itself show that the economy has shifted onto a stronger path.

The gap between expectations and outcome is important for the government because it challenges the view that the UK economy was heading into a downturn. If the economy has proved more robust than many forecasters assumed, that gives ministers more room to argue that their policies are working. However, analysts are likely to remain cautious, because a single month of data rarely settles the direction of the economy. Several months of figures would be needed to show whether August was the start of a sustained recovery or a one-off.

The ONS produces these estimates using a large volume of survey and administrative data, and it regularly revises earlier figures as more information becomes available. That means the August reading could be adjusted in later releases, and the initial picture may look different once revisions are published.

The IMF upgrade and the government's message

The announcement follows an upgrade to this year's UK growth forecast from the International Monetary Fund, which is the global lender and economic monitoring body headquartered in Washington. The IMF publishes regular economic forecasts for its member countries and assesses how their policies are working. Its forecasts are closely watched by governments, investors and financial markets because they offer an independent view of where economies are heading.

Healey linked the August figures to the IMF's recent assessment. He said the growth was "part of the discipline the IMF here in Bangkok this week has endorsed that they see in Britain". The reference to Bangkok indicates that the Fund was holding meetings in the Thai capital that week, and the Chancellor used the IMF's comments to support his argument that the UK is on a sound footing. Upgrades of this kind can strengthen a government's case, although forecasts are not guarantees and can be revised again.

The government's framing is clear: a stronger-than-expected reading, combined with an upgraded outlook from a major international body, supports the message that the UK can absorb global shocks without abandoning its financial rules.

The Budget and the fiscal discipline question

A Budget is the annual statement in which the Chancellor of the Exchequer, the UK's finance minister, sets out tax and spending plans for the period ahead. Because Budgets determine taxes, public service funding and how much the government borrows, they are closely watched by households, businesses, investors and public bodies. Healey's first Budget is due in two weeks, and it will be the first major fiscal statement presented under his leadership of the Treasury.

Healey said he wanted "to give people a bit of breathing space from the cost of living and cost of business pressures", and he promised that "where we can take action, we will". He did not elaborate on what measures the Budget would contain, so the specific policies remain unknown until the statement is delivered.

At the same time, he stressed the government's commitment to fiscal discipline. This term refers to keeping public borrowing and spending within agreed limits and maintaining a sustainable path for the public finances. Healey said that "where we want to do things we have to make sure we can pay for them within the Budget that we've got and control spending". In practical terms, this means any tax cut, support package or new spending will need to be funded within the existing framework.

That tension is likely to define the Budget debate. Calls to ease the cost of living can clash with the need to show markets and voters that borrowing is under control. Analysts will be watching closely to see whether the government can offer targeted relief while keeping its fiscal rules intact.

What the figures could mean for households and businesses

For most people, GDP figures can seem distant from daily life, but they feed directly into jobs, wages, prices and borrowing costs. A growing economy generally supports employment and gives the government more room to fund public services without raising taxes. A weaker economy can mean fewer jobs, slower pay growth and tighter public budgets.

The sector breakdown adds nuance. Flat services and a contraction in construction could be felt by people working in those industries, even though total output rose in August. Those working in shops, offices, hospitality and building sites will be among the people most interested in whether the recovery, if it is one, spreads more broadly across the economy.

Healey's reference to cost of business pressures also matters for employers. Businesses face costs for energy, labour, borrowing and materials, and any Budget measures affecting these areas could influence hiring, investment and prices. Households and firms alike will be judging the government by whether the measures announced feel meaningful in practice.

What to watch next

Several developments will show whether the August result is part of a sustained trend. The next monthly and quarterly ONS releases will provide the first indications, and because earlier figures are often revised, the picture can shift after initial publication. Economists will look closely at whether production continues to rise, and whether the flat services sector and contracting construction industry begin to recover.

The Budget, due in two weeks, will be the most important near-term event. Its details will show how the government plans to balance relief for households and businesses against its fiscal rules, and whether the measures promised by Healey are targeted or broad. Markets and commentators will also assess whether the Budget is consistent with the stronger outlook the government is now presenting.

Forecasts from the IMF and other economic bodies are also likely to be updated over time. Those revisions will help show whether the upgrade to this year's UK forecast holds or whether it is adjusted in light of new data and global conditions.

For now, the government is presenting the August figures as evidence that the UK can handle global economic shocks. Whether that message holds will depend on the data that follows and on the details of the Budget that Healey is set to deliver in two weeks.

Topics: John Healey, UK economy, UK Budget, Office for National Statistics, International Monetary Fund, UK GDP growth, Fiscal discipline, Cost of living

Sources: BBC Business

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