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Chancellor Rachel Reeves is under increasing pressure ahead of next month’s Budget after official figures showed slow growth in August following a surprise contraction in July.
The Office for National Statistics (ONS) said gross domestic product (GDP) rose 0.1% month-on-month in August and fell 0.1% in July, a revision to the previous estimate of no growth.
The ONS said gross domestic product rose by 0.3% in the three months to August, compared with a 0.2% rise in the three months to July.
The latest figures come after the International Monetary Fund (IMF) predicted earlier this week that Britain’s inflation would reach the highest level in the G7 in 2025 and 2026.
While the influential economic body raised its UK growth forecast for this year, it lowered the forecast for 2026 amid concerns over the labor market.
The GDP data adds to the dilemma facing Ms Reeves as she prepares for a challenging budget on November 26, with faltering growth adding to the headache and making it harder to plug the black hole in the country’s finances.
There is continued speculation about imminent tax increases and spending cuts to address the public finance crisis.
A spokesperson for HM Treasury said: “We have seen the fastest growth in the G7 since the start of the year, but for many people our economy feels stuck.
“Working day after day without moving forward.
“The Chancellor is committed to changing this by helping businesses grow in every city and high street, investing in infrastructure and cutting red tape to build Britain.”
ONS data showed that the services sector recorded no growth in August, while construction declined by 0.3%, but manufacturing helped the economy grow overall, with the sector seeing an expansion of 0.7%.
Liz McKeown, director of economic statistics at the ONS, said: “Services growth remained steady, while output contracted less than before.
“Continued strength in business rental and leasing and healthcare were the main contributors to services growth, partially offset by weakness in some consumer-related services, while wholesalers also underperformed.”
Rob Wood at Pantheon Macroeconomics said the economy is now on track to grow 0.2% in the third quarter, but that will be well below the Bank of England’s forecast of 0.4% growth.
He also said that the lower-than-forecast out-turn for the third quarter “is unlikely to be enough to warrant a rate cut in November, as CPI inflation is likely to rise to 4%, with a risk of it reaching 4.1% in September data due next week”.
He was now predicting a cut from 4% to 3.75% in February 2026.
Sanjay Raja, Deutsche Bank’s chief UK economist, said the economy was “now running in a lower gear after a strong start to the year”.
He said: “We expect some volatility to continue through the end of the year.
“In fact, the UK economy has yet to see the full impact of the US trade war.
“Budget uncertainty is also reaching its peak – discretionary household and business spending is likely to decline.”