UK GDP bounces back with 0.2% growth in August

UK GDP is estimated to have grown by 0.2% in August, following a fall of 0.6% in July, the latest ONS figures show.

Looking at the broader picture, GDP increased by 0.3% in the three months to August 2023, with growth in all sectors.

Services output rose by 0.4% in August and was the main contributor to the growth in GDP.

However, output in consumer-facing services fell by 0.6%, production output fell by 0.7% and the construction sector fell by 0.5%.

Jonathan Moyes, head of investment research at Wealth Club, commented: “It was pleasing to see the UK produce a modest 0.2% growth in August. This was despite the dreary weather, which appears to have affected construction and consumer services. Growth was in line with consensus forecasts, which called for around 0.2% growth. On a quarterly basis, the economy remains in the slow lane, with GDP up 0.3%.

"Whilst growth may be nothing to write home about, the economy does appear to be shaking off fears of a looming recession. Forecasters have long predicted a recession that has yet to arrive. The economy may continue to find a way to muddle through, despite the weather.”

Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, said: “Today's GDP increase of 0.2% shows that although the UK’s economic performance has been stronger than initially anticipated, the storm rumbles on with the Bank of England’s aggressive interest rate policy.

“Economic activity rose from the ashes in August following a drought in July, placing output 0.6% above last year’s levels. Economic growth was supported by increased retail activity and an end to industrial action in the education sector. Colder-than-expected weather conditions in August also served to heat up the economy and support higher energy usage.

“Nonetheless, the overall outcome has failed to put the wind in the sails of the UK economy. Persistent strikes in the health and transport sectors and decreased activity across the mining, quarrying, manufacturing and industrial sectors have dampened returns.

“While the UK has so far weathered the tempestuous climate of a cost-of-living crisis and elevated interest rates, resistance is slowly diminishing. The phasing out of government-provided financial support designed to limit the impact of the energy crisis, coupled with high interest rates, will make it increasingly hard to stand tall against the rain.”

Richard Carter, head of fixed interest research at Quilter Cheviot, added: “This morning’s UK GDP figure provides another small glimmer of hope that the UK could scrape through and avoid a recession, with a slight 0.2% uptick in August following a disappointing 0.6% dip in July (revised down in the latest figures). Just this week the IMF predicted that the UK would be the slowest growing economy across the G7 next year, and though 2024 may prove more difficult, this morning’s figure provides some relief that though economic growth is challenging, it is not yet non-existent for the UK.

“We have also started to see hints that the pressure of the cost-of-living crisis is beginning to lift for households. Prices remain considerably higher than pre-pandemic periods, but disposable incomes are starting to improve which has provided some much-needed relief to those who have been struggling. The Bank of England’s decision to pause rate hikes has also offered some respite to homeowners and the housing market which have been grappling with high mortgage rates.

“Though the Bank of England has pressed pause on its rate hiking cycle for now, it still has an incredibly challenging job to do and it may still return to raising rates later in the year or into the next. However, with an election fast approaching the Bank will be keen not to overcorrect and will instead begin to assess what impact its action has had to date. We don’t necessarily see the case for further rate rise and things will continue to bite for consumers as a result of the lag effect of the rate rise. With rates now higher for longer, consumers and businesses will need to adapt to this new environment, one many haven’t faced in their lifetimes.

“The economy may be holding up for now, but whether or not the UK truly manages to avoid a recession is yet to be seen. The speed of interest rate rises and the impact of the cost-of-living crisis may mean the pain is simply delayed, and 2024 could prove considerably more difficult.”