The British economy demonstrated a promising rebound in August, concluding a two-month period of stagnation, propelled by advancements in the production and construction sectors. Data from the Office for National Statistics, released on Friday, reveal that the UK's monthly gross domestic product (GDP) increased by 0.2% in August, aligning with consensus estimates.
Year-over-year, GDP saw a growth of 1% in August, surpassing the previous expansion rate of 0.9%, although it fell short of the anticipated 1.4% growth. This economic resurgence was primarily fueled by the production sector, which registered a month-over-month output increase of 0.5%, bouncing back from a decline of 0.7% in the preceding month.
Key contributors to this growth were the manufacturing sector, alongside favorable movements in water supply, sewerage, waste management, remedial measures, and electricity, gas, steam, and air conditioning supply. In terms of construction, output also rose by 0.4% on a monthly basis, thanks to the uptick in private new housing and new commercial projects.
In contrast, the services sector experienced a modest increase of 0.1% in monthly output, largely influenced by professional, scientific, and technical activities. Despite this positive turnaround in August, Liz McKeown, director of economic statistics at the ONS, expressed concerns regarding the UK's diminished growth trajectory over recent months compared to the first half of 2024.
This sentiment was corroborated by analysts at ING, who forewarned that Britain’s sluggish growth may prompt further interest rate reductions as the year progresses. ING stated, 'This has two main implications for policy. Firstly, it suggests the Bank of England was right to take those stronger first-half growth figures with a pinch of salt.
It could have conceivably used those better figures as an opportunity to revise up its growth forecasts for the next couple of years, but it rightly has chosen not to do so.' Moreover, they noted, 'This means next week's services inflation figures will be more significant. We believe this should begin to undershoot BoE forecasts, likely accelerating policy easing.
We anticipate rate cuts in both November and December.' The performance of the economy in August, while encouraging, underscores the need for vigilance as the country navigates its growth challenges and prepares for upcoming economic policies..