U.K. GDP rose 0.1% in August, beating forecasts for a contraction.
Why it matters: The data may shape expectations for interest rates and the government's October 28 Budget. It also highlights uneven resilience as manufacturing grows while consumer services and construction weaken.
- Monthly GDP rose 0.1% in August, after 0.4% growth in both July and June.
- Production output increased 0.8%, led by a 1.2% rise in manufacturing.
- Services output was flat, while construction fell 0.2% and consumer-facing services dropped 0.3%.
- GDP was 2.1% higher than a year earlier, the strongest annual growth since August 2022.
The August result exceeded the 0.1% contraction forecast in a Reuters poll of economists. The Office for National Statistics said GDP rose 0.7% in the three months to August compared with the three months to May, extending the economy's growth streak to eight consecutive three-month periods.
The gains were uneven. Production rose 0.8% in August, including a 1.2% increase in manufacturing. Services output was unchanged and construction fell 0.2%. Consumer-facing services declined 0.3%, with weakness in sports, recreation, food and beverage services. Motor-vehicle wholesale and retail trade rose 2.7%.
Over the year, professional, scientific and technical activities and information and communication were the largest positive contributors. Computer programming, consultancy and related activities contributed 0.32 percentage points to annual growth. Computer programming output rose 1.1% in August and was 13% higher over the first eight months of 2026, according to Reuters reporting.
"The sector breakdown suggests that AI is behind much of the upswing," said Andrew Wishart, senior economist at Berenberg Bank. The data do not establish that AI caused the increase.
Inflation and energy costs remain a constraint. The Bank of England held Bank Rate at 3.75% in September and said August CPI inflation was 3.1%. It expects the energy-price shock to push inflation to about 3.75% in the fourth quarter and slightly above 4% in the first quarter of 2027. Ofgem's typical annual energy-price cap rose 4% to £1,723 for October-December.
"There may be some hiccups to come ... especially as energy prices continue to bite household incomes," said Sanjay Raja, chief UK economist at Deutsche Bank. The government's Budget is scheduled for October 28.
By the numbers
- 0.7% - GDP growth in the three months to August compared with the three months to May
- 2.1% - Year-on-year GDP growth in August, the strongest since August 2022
- £1,723 - Annual energy price cap for a typical direct-debit household in England, Scotland and Wales for October-December
Yes, but: The monthly GDP estimate is subject to revision and is based on incomplete business-survey responses. The composition was also uneven: services were flat, consumer-facing services fell and construction declined.
What's next: The government's Budget is scheduled for October 28, 2026. The Bank of England's next policy decision will be assessed against stronger activity, 3.1% inflation and an expected energy-driven rise in inflation.