Millennium Wheel And Skyline At Sunset. London, England.
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The British economy expanded by a lackluster 0.1% in August, according to the latest figures from the Office for National Statistics.
Economists polled by Reuters had expected month-on-month growth of 0.1%. The ONS revised its growth data for July, which initially showed the economy flatlining, saying it now assessed that the economy had shrunk by 0.1%. That followed a 0.4% expansion in June.
The economy grew by a better-than-expected 0.3% in the second quarter, down from 0.7% seen in the first quarter, which was boosted by the front loading of business activity ahead of U.S. trade tariffs in April.
The slowdown in growth is not a surprise, with economists forecasting a moderation in economic activity. Third-quarter GDP is due to be released in mid-November and will be closely watched for signs of a deceleration.
“Some course correction is likely after an excellent start for the U.K. economy,” Sanjay Raja, Deutsche Bank’s chief U.K. economist, said in emailed comments this week.
“Indeed, after a strong first half of 2025 momentum, we expect growth to shift to a lower gear in the second half [of the year]. We see quarterly GDP tracking around 0.2% quarter-on-quarter – but there are downside risks brewing.”
BOE and budget ahead
Economists are looking ahead to the Bank of England’s next meeting on Nov. 6 to see whether the central bank’s policymakers will vote to lower interest rates further in order to boost growth. The main obstacle to that is sticky inflation, with the consumer price index at 3.8% in August.
Nonetheless, economists say there is a case for rate cuts as the labor market weakens (with the unemployment rate rising) and wage growth pressures continue to ease.
The BOE’s Monetary Policy Committee (MPC) could be cautious about meddling with interest rates ahead of the government’s Autumn Budget on Nov. 26, however.
UK Chancellor of the Exchequer Rachel Reeves at a roundtable meeting during her visit to the British Steel site on April 17, 2025 in Scunthorpe, England.
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Finance Minister Rachel Reeves is expected to announce tax rises and spending cuts that could put a dampener on consumer spending, business investment and, ultimately, growth.
Economists at Goldman Sachs said in analysis Tuesday that while there was a case for cutting, the BOE was likely to want to see more progress on inflation before cutting rates again, after a trim in August lowered the benchmark interest rate to 4%.
“In particular, normalisation in measures of underlying services inflation — which strip out the noise related to volatile and regulated prices — has stalled in recent months. Moreover, headline inflation is likely to remain close to 4% in the remainder of 2025 given upward pressure from food prices, in particular.”
Goldman said it expected to see significant progress in services inflation in the first half of 2026, but believed the MPC “is likely to wait with more cuts until they see tangible progress in services inflation.”
