UK Economy Grows 0.1% in August, Beating Forecasts of a Fall, as Services Stall Ahead of the October 28 Budget

The United Kingdom's economy grew a little in August, beating expectations of a decline, but the detail behind the headline shows an economy that is being carried by a narrow set of sectors while households hold back. The Office for National Statistics published its monthly GDP estimate on October 15, 2026. The release comes two weeks before the government's Budget, at a time when energy prices are rising and interest rates are higher than many borrowers would like, which makes every data point more closely watched than usual.

Start with the numbers from the ONS bulletin. GDP rose by 0.1% in August. That follows growth of 0.4% in July, which the ONS left unrevised, and 0.4% in June, which was revised up from 0.3%. Over the three months to August, GDP rose 0.7% compared with the three months to May, the eighth consecutive three-month rise, and the two preceding three-month periods were each revised up to 0.5%. GDP in the latest three months is 1.8% higher than in the same three months a year earlier, and August itself is 2.1% higher than August 2025. Euronews reports that economists had expected a contraction of 0.1% for the month, so the outturn was better than forecast, although it marked a slowdown from July.

The sector breakdown is where the story is more nuanced. Over the three months, services grew 0.9% and were the only broad sector to rise, which made them the main driver of growth. Production fell 0.2%, after a revised fall of 0.7% in the three months to July. Construction fell 1.0%, with both new work and repair and maintenance declining. In August alone, production rose 0.8%, led by manufacturing, while services were flat and construction fell 0.2%, its fourth consecutive monthly decline. The ONS also noted that the first estimate of July construction was revised down to a fall of 0.5%, from growth of 0.1%, after new returns from several firms replaced estimated figures. ONS director of economic statistics Liz McKeown said computer programming was once again the largest contributor to growth in the three months to August, according to Euronews, which also reports that growth in the artificial intelligence sector helped drive the expansion in July.

The Euronews headline refers to a fall in consumer spending, although the article does not give figures for household spending or consumer-facing services, and the ONS summary reviewed here does not either. That limits what can be said about shops, restaurants and leisure businesses. What the reports do indicate is a split between businesses and households. Paul Dales of Capital Economics said the coming rise in inflation should still dampen growth, but that the economy is more robust than he thought. He described a division in which businesses are performing well, partly because of AI-related spending, while households are becoming more cautious.

Inflation and interest rates are the backdrop. An economic overview published on October 6 reported that consumer price inflation was 3.1% in the twelve months to August, up from 2.9% in July, with core inflation at 2.6%. It also reported that the Bank of England held its rate at 3.75% on September 17, with three of nine members voting for a rise to 4%. Unemployment was 4.9% in the three months to July and wage growth excluding bonuses was 3.5%. Euronews adds that analysts expect inflation to rise toward the end of the year as higher oil and gas prices pass through to household bills, with no sign of the conflict in the Middle East ending soon, and that Samuel Edwards of Ebury warned that energy prices could reignite inflation and might push the Bank of England to raise rates further. These are analyst views, not official forecasts.

The Budget is the other event to watch. Euronews says it will be presented on October 28 and that the government has pledged to maintain strict fiscal discipline without saying whether new tax rises will be included. It also reports that government bond yields have reached multi-decade highs. Edwards warned that further tax rises could lead consumers to cut spending and businesses to hold back investment, and noted that the International Monetary Fund's gloomier outlook for 2027 suggests the UK is not out of trouble.

What does it mean for people and businesses? For households with variable-rate mortgages or loans, the risk is that inflation pushes the Bank of England to raise rates again, which would raise repayments. For people on fixed rates, the main issue is what happens when they next refinance. For savers, higher rates help deposits, though inflation reduces the real value of savings. For insurance buyers, rising inflation lifts the cost of repairs and replacement, which feeds into premiums, so sums insured should be reviewed to avoid underinsurance. For businesses, the AI-linked strength in technology services is a bright spot, but weakness in construction and production over the quarter shows that gains are not spread evenly.

There are also limits to what one month of data can show. Monthly GDP figures are volatile and are revised, as the August release itself shows with the changes to June and July construction. The ONS cautions that its estimates incorporate revisions in line with the quarterly national accounts and Blue Book 2026, which means earlier numbers can change. A single month of 0.1% growth is not a trend.

The next steps are clear. The Budget on October 28 and the next GDP release on November 12 will show whether the economy can keep growing as energy costs rise and fiscal policy tightens. Readers should treat the forecasts quoted here as opinions and look to the ONS and the Bank of England for official figures.