UK Economy Grew 0.1% in August, ONS Says, Weeks Before Budget

The UK economy grew 0.1% in August, the Office for National Statistics (ONS) said, delivering the last set of official growth figures before Chancellor John Healey's first Budget later this month.

The reading beat analyst expectations. It follows stronger growth of 0.4% in July and upgrades to Britain's outlook from the International Monetary Fund (IMF). Over the three months to August, the economy expanded by 0.7% overall.

Healey still faces a hard task. He must deliver a balanced Budget without turning to more borrowing, and two of the economy's three main sectors are already moving in the wrong direction.

What drove the August number?

Production led the growth. The sector covers manufacturing, oil and gas extraction and energy supply. It expanded during the month and carried the headline figure.

The services industry, the largest chunk of the UK economy, was flat in August. Construction contracted. In other words, one sector out of three did the work.

The three-month picture tells a similar story. Liz McKeown, the ONS director of economic statistics, said computer programming had been the biggest contributor to what she described as "robust" growth over the period. But she added that the production and construction sectors shrank over the same three months.

What did the IMF say?

The figures landed as Healey arrived in Bangkok for the IMF's annual meeting. Earlier this week, the watchdog praised the UK's plans to cut debt levels at a moment when global borrowing costs are rising.

IMF managing director Kristalina Georgieva said the country was seeing "a bit of a better growth prospect" than other G7 nations. That endorsement matters for a chancellor who needs credible forecasts to underpin his tax and spending plans.

Arriving in Bangkok on Thursday, Healey said: "I'm pleased the IMF here in Bangkok backed our economic plans in London.

"They say the UK stands out on growth despite the deep economic shocks that are affecting worldwide at present."

He promised to "stay the path" as he prepares to deliver the Budget in two weeks' time.

Why does 0.1% matter?

The number is small, but the timing is not. These are the final official figures Healey will see before he sets tax and spending plans for the year ahead. A flat services sector and a shrinking construction industry leave him little margin for error if he wants to avoid more borrowing.

The arithmetic is straightforward. Growth of 0.1% produces weak tax revenues. Weak revenues make a balanced Budget harder to deliver without either spending cuts or tax rises — decisions the chancellor must now take with the IMF's endorsement in hand and his Budget two weeks away.