Britain’s economy grew by a better-than-expected 0.1% in the month to August, with output growth offsetting weaker output in services and construction.
A Reuters poll of economists had predicted that gross domestic product (GDP) would contract by 0.1% in July-August. However, the statistics still point to a slowdown in the momentum of Britain’s gross domestic product (GDP), which rose 0.4% month-on-month in June and July.
Output rose 0.8%, but services showed no growth, with construction falling 0.2% in August, the Office for National Statistics said in a statement on Thursday.
GDP grew at an annualized rate of 2.1% in August, beating economists’ expectations of 1.7%. The year-on-year change in GDP was the highest since August 2022, the ONS said.
of british pound Yields on British bonds (known as gilts) fell across the curve, although they rose 0.4% against the dollar following the announcement. Benchmark yield 10 pension The stock last traded down 9 basis points to 5.3364%.
uk gold yield
The UK, a net importer of energy, is currently facing a cost-of-living crisis caused by rising inflation and soaring energy costs following the Russia-Ukraine and Iran wars.
The government is scheduled to announce its much-anticipated fall budget later this month. The government is tasked with sticking to the previous government’s so-called fiscal rules aimed at reining in public debt, while making good on promises to cushion the blow from soaring consumer costs.
Analysts said the slowdown in growth was putting further pressure on Britain’s Chancellor of the Exchequer Healy, who is due to table her first budget on October 28.
Joe Nellis, head of economic research at accountancy firm MHA, said in a note that the economic slowdown would put pressure on Healey’s “fiscal space” – the amount of room the government has to increase spending or cut taxes.
“While continued economic growth should provide some support for tax revenues, the economy remains fragile. Rising debt interest costs are severely constraining fiscal space, and the government’s long-term borrowing costs remain unusually high,” he said.
He added that deciding to raise taxes to balance the books would be “considerable risky” and could lead to weaker consumer spending, lower confidence and a damper on business investment. But at the same time, Nellis said large amounts of unfunded spending could disrupt financial markets and raise borrowing costs for the government.
Scott Gardner, investment strategist at JPMorgan Personal Investing, said in a note after the ONS announcement that while it was encouraging to see the economy continue to grow despite global challenges, the outlook for the rest of the year “remains uncertain ahead of a difficult autumn budget.”
“Given that the UK’s debt repayments have increased over the past year, it is currently unclear how much fiscal space remains, and many will be anxiously watching the Prime Minister’s announcement.”
Sanjay Raja, Deutsche Bank’s chief UK economist, struck a more optimistic tone.
“Although we don’t see a dramatic course correction (so far), there are signs that the engine of the UK economy is slowing from the breakneck pace of the first half of the year,” he said, noting that the consumer services, construction and IT sectors were all down from the previous month.
But Mr Raja insisted that “the story of Britain’s resilience continues”, although he said “no doubt… there will be some challenges towards the end of the year” as energy prices continue to weigh on household incomes and rising interest rates weigh on spending and investment.
“It’s hard to overstate how well the UK has performed over the year,” Mr Raja said. “The UK economy remains the fastest growing of the G7 economies. What’s more surprising? If HMRC employment data is to be believed, UK GDP growth reached 1.8% in the first eight months of this year, with employment falling by 95,000 people. Who said UK productivity growth was dead?”
