UK economy grows just 0.1 per cent ahead of Budget

The increase was down from 0.4 per cent in July, according to the Office for National Statistics (ONS).

However, strong factory production helped the economy avoid the 0.1 per cent decline economists had expected.

The ONS also revised June’s growth figure upwards from 0.3 per cent to 0.4 per cent.

Across the three months to August, gross domestic product (GDP), which measures economic output, increased by 0.7 per cent.

ONS director of economic statistics Liz McKeown said: “GDP growth showed further strength in the latest three months, led by the services sector, while both production and construction fell.”

The figures leave Chancellor John Healey preparing his Autumn Budget against a mixed economic backdrop. Growth has proved more resilient than expected, but households and businesses remain under pressure.

Professor Joe Nellis, head of economic research at accountancy and advisory firm MHA, said inflation had weighed on consumer confidence and spending.

Businesses were also facing higher employment costs and taxes, squeezing profits and discouraging investment and recruitment, particularly among smaller firms.

He warned that August’s modest growth would offer the Chancellor limited reassurance. High government borrowing costs have reduced the room available for extra spending or tax cuts without breaking the Government’s financial rules.

Professor Nellis argued that further tax increases could weaken household spending and business confidence. However, spending commitments without funding could also unsettle financial markets and push borrowing costs higher.

He urged the Chancellor to protect areas attracting investment, including AI-related industries and infrastructure, while keeping public spending under control.

There are also concerns that stronger-than-expected growth could make an interest rate rise more likely, even as the economy slows.

Suren Thiru, chief economist at ICAEW, said: “The UK economy continued to wrongfoot expectations in August as strong manufacturing output helped power better-than-expected growth, despite mounting financial pressures on households and businesses.”

He warned that September could prove weaker as rising oil and gas prices, inflation and uncertainty before the Budget weigh on confidence.

Mr Thiru said the figures strengthened his expectation that the Office for Budget Responsibility would raise its growth forecast for this year from 1.1 per cent to 1.4 per cent.

But he cautioned that higher borrowing costs would continue to put pressure on the Chancellor to raise taxes.

On interest rates, he said: “These unexpectedly upbeat figures will further embolden hawkish sentiment among policymakers by reinforcing the view that the economy is strong enough to withstand a rate rise, making a November hike look highly likely.”

For households, the figures offer little sign of immediate relief from the cost of living.

Kevin Brown, savings expert at Scottish Friendly, said: “Inflation and higher living costs remain a challenge for many families, while stronger economic data could support the case for interest rates staying higher for longer.”

He encouraged households to review their finances ahead of the Budget, compare savings rates and take a long-term approach to saving and investing.