UK economy set to contract in August after summer surge
ONS data due Thursday is expected to show a 0.3% fall in August, as services slow and inflation worries loom, despite a strong summer.
The Office for National Statistics is set to reveal on Thursday, 15 October, that the UK economy shrank in August, ending a brief summer surge.
Economists say the contraction reflects a correction after the economy grew faster than expected in June and July.
June saw GDP rise by 0.3 per cent, buoyed by hospitality and leisure firms that benefited from football fever and an unusually long spell of hot weather.
July’s performance surprised forecasters, with a 0.4 per cent increase driven by a strong services sector and a noticeable uptick in businesses’ use of artificial intelligence.
Robert Wood, chief UK economist at Pantheon Macroeconomists, predicts the latest figures will show a 0.3 per cent decline in August.
He warned that “the ‘big three services’ – which together account for 19.7 % of GDP – had a stonking July, with the strongest monthly growth since April 2022.” The crucial judgment for August is how much of that surge has unwound.”
Wood expects all major components of the economy to report weaker output, with professional services, administration and information and communication showing notable weakness.
The services sector, which surged by 0.6 per cent in July on strong demand for AI and cloud‑computing services, is likely to see that momentum ease.
Manufacturing is projected to have flat‑lined for the month, as gains in some factories were offset by a slump in the automotive segment.
Thomas Pugh, chief economist at RSM UK, forecasts a shallower decline of 0.1 per cent for August.
He cautioned that the weaker monthly performance should not “obscure the broader trend of resilience”, and expects the third quarter of 2026 to grow between 0.4 per cent and 0.5 per cent.
Pugh highlighted rising inflation as a key uncertainty, noting it could climb to around 4.5 per cent early next year.
He added that unemployment is likely to drift back above 5 per cent and that the upcoming Budget may add further uncertainty in the fourth quarter.
“Together, those pressures are likely to slow growth sharply in the final quarter of this year and ensure a slow start to 2027,” he said.
The outlook beyond the summer therefore remains precarious, with businesses and consumers facing the twin challenges of higher price pressures and a potentially tighter fiscal environment.
Analysts will be watching the ONS release closely for clues on whether the summer’s momentum was a temporary blip or a sign of deeper resilience in the UK economy.