Britain’s economy grew 0.1% in August, defying forecasts of a contraction before the Budget

The UK economy grew by 0.1% in August, defying analysts’ expectations of a slight contraction, the BBC reported⁵. Sky News described the reading as surprise growth and said the economy was stronger than first thought¹. Morningstar reported that the monthly rise eased from a 0.4% increase in July over June³. The Times said growth slowed but beat expectations, and quoted Liz McKeown, director of economic statistics at the Office for National Statistics².

The Guardian reported that the economy unexpectedly grew despite a fall in consumer spending, and called the reading a boost to the chancellor, John Healey⁴. Healey said the figure was a sign of resilience ahead of his Budget⁵. Separately, the International Monetary Fund said it is not recommending that Britain speed up its fiscal consolidation⁷. “The UK is actually one country where action to reduce debt and deficit has been taken decisively,” the fund’s managing director, Kristalina Georgieva, said⁷. The IMF had earlier raised its growth forecast for Britain⁸.

Why it matters to investors

The combination matters for gilts because it changes the pressure on the chancellor before the Budget. The BBC’s Faisal Islam wrote that the IMF’s praise for the UK’s approach to debt reduction tells investors something about what to expect from that Budget, noting the fund’s standing message to governments to get their fiscal health in order⁸.

The composition of the growth is as notable as the total. The Wall Street Journal reported that AI-related spending contributed as much as a third of growth in the first seven months of the year, according to Deutsche Bank⁶. That concentration means the headline resilience rests heavily on one spending stream⁶. At the same time, the Guardian reported the growth came despite falling consumer spending, so household demand was not the source⁴.

What to watch

Forecasters are not uniformly more optimistic. Morningstar noted that the OECD has cut its UK growth forecast for 2027 as inflation persists³. Sky News said the monthly figure had been forecast by numerous analysts to come in weaker¹.

The near-term tests are the Budget itself, where the IMF’s comments bear on how fast the chancellor must move^7,8, and whether AI-linked spending keeps carrying output as the Journal described⁶. Whether August’s surprise persists into later months will determine if this is a turn or a single print^2,5.