UK economy set for marginal August growth
The UK economy is expected to have marginally grown in August after a sharp slowdown in activity in the second half of the year.
A Bloomberg poll of economists suggests the UK economy is expected to grow by just 0.1 per cent over the one-month period, with a contraction of 0.2 per cent in the construction sector set to drag on activity.
Fresh data set to be published by the Office for National Statistics (ONS) on Thursday is likely to add to woes faced by the Labour government given its primary mission to grow the UK economy.
Deutsche Bank’s Sanjay Raja, who backed the consensus view on the UK economy growing by 0.1 per cent, said there were “downside risks” to its near-term forecast given a possible slump in manufacturing over the summer.
Lingering uncertainty ahead of Autumn Budget
He added that on wider trends, the UK economy would have to re-adjust after seeing one per cent growth in the first half of the year.
“Some course correction is likely after an excellent start for the UK economy,” Raja said.
“We expect growth to shift to a lower gear in the second half of 2025. We see quarterly GDP tracking around 0.2 per cent quarter on quarter – but there are downside risks brewing.
“The latest survey data highlight lingering uncertainty – particularly with the Budget several weeks away. Discretionary spending plans may come to a halt, as a result.
“An unwinding of stockpiling and exports growth, we expect, will keep GDP from pushing to above trend growth rates.”
Some economists believe fresh data could provide a bleaker reading for Reeves as output across the North Sea has been “collapsing”.
Analysts at Pantheon Macroeconomics said the UK economy will show output “unchanged month-to-month”, in line with figures for July showing zero growth.
Economists Rob Wood and Elliott Jordan-Doak explained that a fall in mining output would be a primary drag due to a three-week maintenance shutdown at the Buzzard oil field, forcing loadings to collapse by a third on the month.
They also said that “erratic sectors” across production had dragged down on UK growth, leaving quarterly growth in manufacturing weaker than S&P Global surveys suggested.
They also project services activity to rebound, with growth in professional and administrative services along with communication set to jump back after a fall in July.
UK economy set for difficult second half of the year
New figures on the UK economy’s sluggish growth is likely to concentrate minds at the Treasury ahead of a crucial Budget.
Reeves has said that amendments to the government’s planning bill, which is passing through parliament, will allow ministers to prevent applications being rejected by local powers.
The amendments will also allow new infrastructure including reservoirs will be green-lit at a faster pace, with planning permissions on big housing projects also set to be extended when developers face legal challenges.
The plans are part of an effort to persuade the Office for Budget Responsibility (OBR) to keep growth forecasts intact after it upgraded forecast due to the government’s initial planning bill.
Extra growth reforms would thereby give Reeves extra leeway when she is expected to raise taxes by some £30bn on households and businesses in this year’s Budget.