UK GDP continues to beat expectations with 0.7% quarterly growth

UK GDP grew by 0.7% in the three months to August, following growth of 0.5% in the three months to July and 0.5% in Q2, the latest ONS figures show.

Monthly GDP grew by 0.1% in August and, although below the growth of 0.4% seen in both June and July, this is higher than economists' expectations of a 0.1% fall.

The growth in August was driven by a 0.8% growth in production, with services showing no growth, and construction falling by 0.2%.

Derrick Dunne, CEO of YOU Asset Management, commented: “That the UK economy expanded by 0.7% in the three months to August will be something of a positive signal for the Chancellor and government ahead of the Budget in under two weeks’ time.

“The UK economy has shown remarkable resilience in the face of waves of geopolitical issues outside of its control. The IMF has itself noted that the UK economy appears to be holding up well in the circumstances. 

“Chief among concerns now will be what the Budget at the end of the month contains. Significant tax and spending increases would put further pressure on Government bond yields. Markets will be looking for restraint from Chancellor Healey’s first major update. 

“A step in the wrong direction, as we have seen in recent times, will be quickly punished. The economy might be surprising to the upside but confidence is very thin. A bad Budget could have profound consequences given where we are with inflation and interest rates."

Richard Pike, chief sales and marketing officer at Phoebus Software, said: “The UK economy is performing better than expected, and this week the IMF upgraded its growth forecast for 2026. But three months of modest expansion does not necessarily point to a sustained recovery, and the key question is whether growth is broad-based or masking weakness elsewhere in the economy.

“For the majority of people, the current economic situation feels like a contradiction – the UK economy is growing yet households feel poorer, businesses are under pressure and the public finances are stretched.

“In the mortgage market, borrowers are still weighing up affordability and the cost of borrowing, while lenders are dealing with customers in increasingly different financial circumstances.

“With the Budget just a fortnight away, the Chancellor will need to turn any signs of economic resilience into measures that support sustainable growth. For the housing market, that means addressing the pressures on household finances and creating the conditions for buyers to commit with greater confidence.”

Jonathan Raymond, investment manager at Quilter Cheviot, added: "The UK economy continued to eke out growth in August. While monthly GDP is volatile and subject to revisions, growth of just 0.1% was registered, down from 0.4% in July. The three-month rate remains robust and ahead of forecasts, while the year-on-year figure of 2.1% is a respectable rate of growth by western economy standards and was comfortably ahead of expectations. The broader picture therefore remains more encouraging than the relatively subdued monthly figure might suggest.

"Earlier this week, the IMF delivered a dose of good news, with the growth forecast for the UK economy this year being upped at the same time as the country was called out for an admirable deficit reduction programme.

"That said, the economic environment for next year continues to look challenging, with growth forecasts cut as a result, while the deficit reduction requires some difficult spending decisions to be made from 2028, something the new government will not likely want to be implementing. Higher energy costs and interest rates, alongside elevated inflation, will weigh on confidence going into 2027.

"While today’s data is modestly positive, it does little to simplify the Bank of England’s task when it comes to interest rates. The Bank has a difficult balancing act between fighting inflation and avoiding choking off economic growth, and the resilience shown in the wider GDP figures gives it less reason to rush. Market eyes are now firmly trained on the Budget in less than two weeks’ time and the potential this has for pro- or anti-growth measures. Given the fiscal position remains of concern, tax rises are expected to be announced, but the scale of these remains to be seen. The government has wanted to deliver more of the positive ‘vibes’, and today’s figures provide some support for that narrative, even if the reality of the public finances means there is little room for complacency."