"Today’s results will provide reassurance to the Bank of England’s rate-setters, proving that the previously prolonged period of high rates did not derail economic activity, even as inflationary pressures diminished"
- Jeremy Batstone-Carr - Raymond James Investment Services
ONS data shows that gross domestic product recorded a 0.2 per cent growth in August - an increase on no growth in June and July - with the services sector cited as the main contributor, rising by 0.1% in August after a similar increase in July.
However, ONS warned that the broader picture reflected one of “slowing growth” when compared to H1.
Liz McKeown, from the ONS, 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."
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services said: “This morning’s data showed that, despite stagnation during the early summer months, the UK’s economy gathered pace in August, with GDP rising by 0.2%. With the Budget announcement fast approaching, this will come as welcome news to the Chancellor, although paired with the hope that September’s figures might replicate August’s growth reignition.
“Unsurprisingly given the last few months’ patchy economic performance, today’s update showed a mixed bag of results across sectors. The service sector continues to deliver solid output, being the strongest economic driver after buoyant retail sales and the conclusion of healthcare strike action. Elsewhere and encouragingly, manufacturing and construction have rebounded after a weak July, contributing to the month’s activity revival.
“Today’s results will also provide reassurance to the Bank of England’s rate-setters, proving that the previously prolonged period of high rates did not derail economic activity, even as inflationary pressures diminished. The Monetary Policy Committee will now have its sights set on the Budget announcement, as well as the evolution of price and wage pressures, to help inform next month’s rate decision.”
Mike Randall, CEO at Simply Asset Finance says: “A marginal rise in GDP offers some hope for the economy, and could suggest businesses are remaining optimistic. However, many businesses are still tentatively waiting for transparency before making any bold moves. This is understandable ahead of a budget, but it's vital the Government provides clarity and reassurance to the UK’s 5.5million SMEs on October 30th, if it is to successfully achieve growth.
“And there’s clear potential for growth. Just last month the OECD updated its growth forecasts for 2024 from 0.4% in May to 1.1%. However, reaching this goal will be impossible without ensuring the success of small and medium-sized businesses. While there are important fiscal challenges to solve in Labour’s first budget, we urge the Government to prioritise pro-business policy to ensure that SME growth ambitions and economic recovery are not overlooked.”
George Lagarias, Chief Economist at Forvis Mazars comments: “A 0.2% growth for August is a very welcome number, despite the fact that it was somewhat expected. The reason is that it marks only the second month in the last twelve where all three major areas of the economy (services, production, construction) grew together.
"More importantly, UK growth appears to be more balanced, and thus more sustainable. The news is unequivocally good. It is exactly this that will give Andrew Bailey a headache, as his plans for faster rate cuts may be thwarted by stronger and healthier growth. For the time being, despite healthier growth, the UK has plenty of room to reduce the cost of money towards a neutral rate, but the Bank will likely be more careful unless it inadvertently stokes inflation again.”
Nicholas Hyett, Investment Manager, Wealth Club said: “August's GDP growth was broad-based, with British brains and British brawn both contributing to healthy growth.
"In the crucial Services sector, professional, scientific and technical activities continue to be the key driver of growth - with auditors, lawyers and scientific researchers all reporting a busy month.
"In Production manufacturing enjoyed a rebound over the summer, particularly in transport, while infrastructure activity drove a strong result in Construction.
"This is all welcome news for the Treasury ahead of the Budget which is expected to see taxes rise, 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."
