U.K. GDP Grows 0.1% in August as Economy Shows Modest Recovery
The U.K. economy returned to modest growth in August, offering a small but welcome boost for Chancellor Rachel Reeves ahead of the autumn budget.
Data from the Office for National Statistics (ONS) released on Thursday showed that gross domestic product (GDP) rose 0.1% month-on-month, following flat growth in July. On a yearly basis, the economy expanded 1.3%, slightly below the 1.5% growth recorded in the previous month, which had been revised upward from an earlier estimate of 1.4%.
In the three months to August 2025, GDP grew 0.3%, compared with 0.2% growth in the three months to July, suggesting a modest but steady recovery in activity.
Budget Challenges Ahead for Chancellor Reeves
Finance Minister Rachel Reeves is preparing to unveil her next budget announcement in November, facing mounting pressure to balance public finances while avoiding tax hikes.
Despite introducing £40 billion in tax increases in her first budget last year, Reeves still needs to find an additional £22 billion to meet her goal of keeping day-to-day spending balanced with tax revenues by the end of the decade, according to the Institute for Fiscal Studies (IFS).
However, Reeves’ hands are tied by her 2024 election pledge not to raise major taxes, limiting her fiscal options. Analysts warn that any new tax rises could stifle the fragile economic growth and complicate future monetary policy decisions by the Bank of England.
Inflation and Interest Rates Remain High
The Bank of England will hold its next policy meeting in early November, after keeping its base rate steady at 4.00% during its September 18 meeting.
“Inflation remains high, as do interest rates,” said Michael Field, chief equity strategist at Morningstar. “The Bank of England wants clear evidence that inflation is under control before considering any further cuts.”
Despite persistent challenges, August’s GDP uptick offers a slight sign of stabilization in the U.K. economy, though significant hurdles remain heading into the final quarter of the year.
