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Millennium wheel and skyline at sunset. London, England.
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The British economy grew by 0.1% in August, according to the latest figures from the Office for National Statistics.
“Production grew by 0.4% in August 2025, while services showed no growth and construction fell by 0.3% in August,” the ONS said.
Economists polled by Reuters had expected month-on-month growth of 0.1%. The ONS revised its July growth data, which initially showed the economy was on track, saying it now assessed the economy contracted by 0.1%. This was after a 0.4% expansion in June.
The slowdown in growth is not a surprise, as economists expect a moderation in economic activity. Third-quarter GDP is expected to be released in mid-November and will be closely watched for further signs of a slowdown.
The economy grew to better than expected 0.3% in the second quarter, down from 0.7% in the first quarter, which was driven by the frontal load of business activity ahead of US trade rates in April.
“A course correction is likely after an excellent start for the UK economy,” Sanjay Raja, chief UK economist at Deutsche Bank, said in emailed comments this week.
“Indeed, after a strong boost in the first half of 2025, we expect growth to shift to a lower gear in the second half (of the year). We see quarterly GDP still around 0.2% quarter-on-quarter, but there are downside risks.”
BOE and budget ahead
Economists are looking ahead to the Bank of England’s next meeting on November 6 to see if the central bank’s policymakers will vote to lower interest rates further to boost growth. The main obstacle to this is sticky inflation, with the consumer price index at 3.8% in August.
However, economists say there is a case for rate cuts as the labor market weakens (with the unemployment rate rising) and wage growth pressures continue to ease.
However, the BOE’s Monetary Policy Committee (MPC) could be cautious about interfering with interest rates ahead of the government’s autumn budget on 26 November.
UK Chancellor of the Exchequer Rachel Reeves at a panel discussion during her visit to the British Steel site on April 17, 2025 in Scunthorpe, England.
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Finance Minister Rachel Reeves is expected to make the announcement tax increases and spending cuts which could hold back consumer spending, business investment and, ultimately, growth.
The latest growth data will give the chancellor pause for thought, Scott Gardner, investment strategist at JP Morgan digital asset manager Nutmeg, said on Thursday.
“As the autumn budget approaches and the chancellor becomes increasingly reliant on the OBR’s growth projections, this slowdown will worry policymakers and could make a difference to tax and spending decisions. Unlocking growth is key to easing the UK’s financial pressures and putting the economy back on solid ground,” he said in emailed comments.
Goldman Sachs economists said in an analysis on Tuesday that while there was a case for cutting, the BOE is likely to want to see more progress in inflation before cutting rates again, after a cut in August lowered the benchmark interest rate to 4%.
“In particular, normalization of underlying services inflation measures, which remove noise related to volatile and regulated prices, have stalled in recent months. In addition, headline inflation is likely to remain around 4% for the remainder of 2025 amid upward pressure from food prices in particular.”
Goldman said it expected to see significant progress in services inflation in the first half of 2026, but believed the MPC “is likely to hold off on further cuts until it sees tangible progress in services inflation.”
