UK economy grows 0.1% in August as chancellor prepares Budget

The UK's economy expanded by 0.1% during August, marking modest growth in the month before Chancellor John Healey unveils his first Budget. The Office for National Statistics released the figures as Healey prepared to announce his tax and spending strategy at the end of October.

This incremental expansion followed a stronger performance in July, when the economy grew by 0.4%. The August growth was driven primarily by increased production activity, encompassing manufacturing, oil and gas extraction, and energy supply. However, the services sector—which represents the largest component of Britain's economy—remained flat during the month, while construction activity contracted.

The timing of these figures comes as international economic observers have offered cautiously optimistic assessments of the UK's prospects. The International Monetary Fund, meeting in Bangkok where Healey was present, acknowledged the government's debt-reduction strategy. According to the Office for National Statistics, second-quarter 2026 GDP growth was revised upward from 0.4% to 0.5%, while first-quarter growth remained at 0.6%.

What did the IMF say about the UK economy?

The International Monetary Fund's managing director Kristalina Georgieva highlighted that the UK was experiencing stronger growth prospects compared to other G7 nations, despite global economic headwinds. Upon arriving in Bangkok on Thursday, Healey responded positively to the IMF's endorsement, stating:

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.

What challenges does the chancellor face?

Despite the modest growth figures and international support, Healey confronts a significant challenge: delivering a balanced Budget without resorting to increased borrowing. Global borrowing costs have risen, adding pressure to government finances. Additionally, inflation has become a complicating factor. According to inflation data, price growth reached 3.1% in the year to August—its highest rate in five months and above the Bank of England's 2% target, driven partly by higher petrol and diesel prices.

When will the Budget be announced?

The Budget is scheduled for Wednesday 28 October 2026, giving Healey two weeks from the time of his Bangkok statement to finalise his fiscal plans. The announcement will set out the government's detailed approach to taxation, public spending, and borrowing for the coming period.

Key Facts

• August 2026 GDP growth of 0.1% was driven by production sectors including manufacturing and energy supply
• The services sector showed no growth while construction contracted during the month
• The IMF praised the UK's growth outlook relative to other major economies despite global economic challenges
• Inflation stood at 3.1% year-on-year in August, above the Bank of England's 2% target
• The Budget announcement is scheduled for 28 October 2026