[LONDON] The UK economy resumed modest growth in August as a rebound in manufacturing helped offset a stagnant month for the dominant services industry.
Gross domestic product rose 0.1 per cent after falling 0.1 per cent in July, the Office for National Statistics (ONS) said on Thursday (Oct 16). The increase was in line with the median forecast of economists surveyed by Bloomberg. Factory output grew a faster-than-expected 0.7 per cent, while services were flat for a second straight month and construction shrank.
The figures put Britain on course for some growth in the third quarter, a modest boost for Chancellor of the Exchequer Rachel Reeves ahead of what’s expected to be a challenging budget on Nov 26 with businesses and consumers braced for further tax increases. The economy will expand over the quarter unless GDP drops by 0.5 per cent or more in September, the ONS said.
The figures may nevertheless do little to assuage concerns that the economy has reverted to a more pedestrian pace after outperforming every other Group of Seven country in the first half. Reeves needs growth to stabilise the public finances and deliver on election pledges to invest more in public services and lift living standards.
“Regaining momentum hinges on restoring business confidence and reducing uncertainty, which the government can support by setting aside a larger fiscal buffer in the upcoming Budget,” said Fergus Jimenez-England, associate economist at NIESR, a think tank.
GDP grew by 0.3 per cent in the three months through August. The data had little impact on markets, with the pound barely changed at US$1.3417 on Thursday.
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The GDP figures end a week of dismal economic news for the chancellor.
On Tuesday, the International Monetary Fund predicted Britain will suffer the fastest inflation among major economies in the next two years. Hours earlier, Britain reported a surprise increase in unemployment, prompting Bank of England Governor Andrew Bailey to raise concerns that the economy is running under potential. External rate-setter Alan Taylor meanwhile warned that Britain was facing a rising risk of a hard landing.
While traders put the odds of a further interest-rate cut this year at less than 40 per cent, they are fully pricing in a move by March and a further quarter-point reduction by the end of next year. Gilts have rallied in recent days.
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The rise in manufacturing followed a fall of 1.1 per cent in July, with output increasing in 8 of the 13 subsectors, the ONS said.
The largest contribution came from a 3 per cent rise in the manufacture of basic pharmaceutical products and pharmaceutical preparations. There were also increases for machinery and equipment, metals and chemicals.
The services sector failed to grow once again despite a rise in retail sales during the month. There were falls in wholesale, entertainment and recreation and transport and storage. Growth came largely from rental and leasing activities, followed by health care. Consumer-facing services grew 0.1 per cent in August following no growth in July.
Separate data showed imports of goods were flat in August, while exports fell with shipments to both European Union and non-EU countries declining. Exports to the US, including precious metals, fell by around £700 million (S$1.21 billion). BLOOMBERG
–With assistance from Joel Rinneby, Mark Evans and Harumi Ichikura.
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