UK economy unexpectedly grows despite fall in consumer spending

Britain's economy grew unexpectedly in August, official data showed on Thursday, in a boost to Finance Minister John Healey ahead of the Labour government's budget update this month.

Gross domestic product rose 0.1% in August from the previous month, beating analysts' consensus forecast for a 0.1% contraction.

The figure still marked a slowdown from the 0.4% expansion recorded in July.

Prime Minister Andy Burnham, who has made easing the cost of living a key focus for his Labour government, has set the stage for difficult decisions to be made in the 28 October budget presentation.

With inflation rising and government bond yields reaching multi-decade highs, Healey, who will unveil the budget, has pledged to maintain strict fiscal discipline.

But he has not been drawn on whether his budget will include new tax rises to help reduce Britain's debt pile.

Analysts expect UK inflation to rise towards the end of the year as higher oil and gas prices feed through to household bills, with little sign of an end to the Middle East war.

"We still expect the coming rise in inflation to dampen growth, but the economy is more robust than we thought," Paul Dales, chief UK economist at Capital Economics, said.

GDP in the three months to the end of August grew 0.7%, the ONS noted.

Liz McKeown, ONS director of economic statistics, said that "computer programming was once again the largest contributor to growth in the three months to August".

The boom in the artificial intelligence sector had also helped drive growth in July.

"There is a bit of a divergence going on within the economy, with businesses performing well (partly due to AI-related spending) while households are becoming more circumspect," Dales said.

Samuel Edwards, head of client portfolio management at financial solutions firm Ebury, sent his comments on the update in a client note to Euronews. He noted how the IMF's gloomier outlook for 2027 suggests the UK is far from out of the woods.

“Rising energy prices linked to the ongoing Iran conflict risk reigniting inflation, potentially forcing the Bank of England to raise interest rates further and piling more pressure on households and businesses.

“With confidence already fragile, the prospect of further tax rises in the Autumn Budget could see consumers rein in spending and businesses put investment on ice.

“Against this backdrop, businesses must strengthen their financial resilience – keeping operations lean, maintaining access to finance and using effective FX hedging to limit exposure to further volatility,” Edwards added.