UK economy returns to growth ahead of Rachel Reeves’ first Budget

The economy returned to growth in August after two consecutive months of stagnation, official figures show, in a boost for Chancellor Rachel Reeves prior to the Autumn Budget.

Figures published this morning by the Office of National Statistics (ONS) showed that GDP rose 0.2 per cent in August, in line with economists expectations.

All main sectors of the UK economy grew over the last month. The services sector rose 0.1 per cent, while production and construction grew 0.5 and 0.4 per cent, respectively.

Although the figures confirm that the economy resumed its expansion, the UK is not expected to return to the robust growth rates seen earlier in the year. Growth over the last quarter totalled 0.2 per cent, due to the slowdown suffered in June and July.

“The broader picture is one of slowing growth in recent months, compared to the first half of the year,” Liz McKeown, director of economic statistics at the ONS, said.

“In August, accountancy, retail and many manufacturers had strong months, while construction also recovered from July’s contraction. These were partically offset by falls in wholesailing and oil extraction.”

Chancellor of the Exchequer, Rachel Reeves said: “It’s welcome news that growth has returned to the economy. 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 the we deliver on our promise to bring investment, growth, and jobs back to every part of the country.”

Despite recent downward revisions, the UK was among the fastest growing economies in the G7 in the first half of 2024. The UK’s surprising economic strength came thanks to an improving picture on the supply side as well as a recovery in consumer spending power.

Some business leaders were less than impress however, with one London group branding growth “anaemic”.

While economic activity has slowed, many of the positive trends remain intact which should help ensure that the economy continues to expand modestly over the remainder of this year.

Most economists think the UK is still on track to grow around 1.0 per cent in 2024, well ahead of the 0.3 per cent pencilled in by analysts last December.

Still, the UK’s longer term growth performance has been disappointing and the new Labour government has pledged that wealth creation will be its “number one priority”.

Since entering office the government has announced a major overhaul of the planning system and Chancellor Rachel Reeves is expected to ramp up public investment in the upcoming Budget.

But businesses are nervous that the government’s attempts to put the public finances on firmer ground will interfere with its growth mission.

Multiple business surveys have suggested that business confidence has slumped as a result of rumours about tax hikes, particularly regarding capital gains and employers’ national insurance.

Muniya Barua, Deputy Chief Executive at BusinessLDN, said: “All eyes will be on the Chancellor to see how she intends to kickstart the economy after this latest data shows growth is still anaemic.”

Businesses are looking for greater clarity from the Government on their tax and spending plans in the Budget so they can look to the future with more confidence.

“The Chancellor should prioritise measures that can unlock significant sums of private investment such as confirming HS2 will reach Euston, which could contribute £41bn to the economy over the next three decades. There are also several no or low cost steps that can boost the economy such as giving local leaders the tools they need to drive growth, establishing clear infrastructure funding models to crowd in private cash and ensuring the new Growth & Skills Levy is designed in a way that encourages investment in training.”

Anna Leach, chief economist at the Institute of Directors, said: “It’s good to see the economy return to growth in August, after two months of stagnation.”

Growth over the second half of this year is expected to be somewhat slower as headline activity shifts downwards to match underlying momentum.”

“Ahead of the Budget, there’s an understandable focus on addressing this year’s fiscal deficit. But we need to shift the narrative from filling today’s deficit to building tomorrow’s economy – that’s the key to sustainable public finances and higher living standards.”