The Economy Grew When Forecasters Expected a Contraction
Output rose 0.1% in August, against a forecast fall of the same size. The growth came from production, up 0.8%, while services were flat and construction fell 0.2%. Over the year output was 2.1% higher, the fastest rate since August 2022. Consumer-facing services fell 0.3%, a second monthly decline, and the Budget is on 28 October.
The headline and the household experience point in opposite directions, and both are in the same release. The growth came from factories, energy and computer programming; what fell was the part of the economy people actually spend money in, with consumer-facing services down 0.3% after a 0.1% fall in July and the largest drags coming from recreation and from food and drink services. Sanjay Raja of Deutsche Bank calls the resilience hard to overstate and notes Britain is still the fastest-growing economy in the group of seven. Matt Swannell of the Item Club is blunter: “We’re sceptical this strength can last … Some pullback looks inevitable.” Jake Finney of PwC credits spending on computing hardware tied to building artificial-intelligence capacity, while noting Britain still lags the United States on the scale of that investment. Sterling rose 0.4% against the dollar after the release and gilt yields fell across the curve, though that bond move was happening everywhere this morning as money left shares. Andrew Griffith, the shadow chancellor, points out that construction has now shrunk for four months running, with private housebuilding falling fastest.