The UK economy barely budged in August, posting a measly 0.1% growth according to fresh ONS data. After a decent first half of the year, momentum’s clearly stalling—and construction’s taking the blame. With Rachel Reeves under pressure to deliver on Labour’s growth promises, these numbers aren’t doing her any favours. Here’s what’s happening and why it matters.
The Numbers: Growth Grinds to a Crawl
August wasn’t exactly a banner month. While the three-month period ending in August saw 0.3% growth, the single-month figure landed at just 0.1%—exactly what economists predicted, but nothing to celebrate.
The services sector, which accounts for about 80% of the UK’s economic output, flatlined completely in August after managing 0.4% growth over the three-month stretch. Construction dropped 0.3% month-on-month, dragging overall performance down.
Production told a similar story: down 0.3% over three months but bouncing back slightly in August. Still, the trend’s clear—industry’s struggling with rising costs and weak demand.
Why the Slowdown?
Remember that strong 1% growth in the first half of 2025? Turns out businesses front-loaded spending and investment ahead of April’s tariff concerns. Now we’re seeing the hangover.
High interest rates, tax hikes, and sluggish international demand are all weighing on growth. Business confidence surveys are painting a grim picture, with firms sitting tight on hiring and investment until they know what’s coming in the Budget.
Ruth Gregory from Capital Economics summed it up: “Growth is still being hampered by high interest rates, higher taxes and soft overseas activity.”
The ONS also revised July’s figures downward—the economy actually contracted 0.1% that month.
Reeves Under Pressure
Chancellor Rachel Reeves is facing mounting criticism as Labour’s central mission—faster economic growth—looks increasingly shaky. She’s been pushing Cabinet members to focus on growth and inflation, but the data isn’t cooperating.
A Treasury spokesperson tried to spin it positively: “We have seen the fastest growth in the G7 since the start of the year, but for too many people our economy feels stuck.”
With Reeves reportedly planning up to £30bn in tax rises at November’s Budget, economists worry fiscal tightening could further stall growth. The IFS has urged her to build bigger fiscal headroom to avoid repeat tax grabs down the line.
What’s Next for UK Growth?
The outlook’s pretty gloomy. The IMF bumped up its 2025 UK growth forecast by 0.1 percentage point but lowered 2026 expectations as tariff rates climb. Worse still, the UK’s GDP per capita growth is projected to be the lowest in the G7 next year.
The November 26th Budget is now the focal point. Ben Jones from the CBI said firms need clarity: “The Budget provides a critical opportunity for the government to reaffirm its commitment to growth.”
Businesses want planning reform, tax simplification, a flexible Growth and Skills Levy, and solutions for high energy costs. Without those, don’t expect investment to pick up anytime soon.
The Bottom Line
UK economic growth is losing steam fast. After a promising start to 2025, high costs, uncertainty, and weak demand are putting the brakes on. The November Budget will reveal whether Reeves can deliver growth-friendly policies—or whether more tax hikes will keep businesses frozen. Stay tuned.
FAQ: UK Economic Growth in August
Q1: Why did the UK economy only grow 0.1% in August?
A: Construction fell sharply, services stagnated, and production struggled with high costs and weak demand. Businesses also front-loaded spending earlier in the year, creating a slowdown in late summer.
Q2: What does this mean for Chancellor Rachel Reeves?
A: It puts pressure on her central promise to accelerate UK growth. With tax hikes potentially totalling £30bn in November’s Budget, critics worry fiscal tightening could further damage economic momentum.
Q3: How does UK growth compare to other G7 countries?
A: The UK had the fastest growth in the G7 for the first half of 2025, but the IMF now projects the UK will have the lowest GDP per capita growth among G7 nations in 2026.
Q4: What are businesses worried about?
A: Rising taxes, high interest rates, planning red tape, and expensive energy costs. Many firms are delaying investment and hiring until they see clearer policy direction from the government.
Q5: Will the November Budget help growth?
A: That depends on what Reeves delivers. Businesses want planning reform, tax simplification, and energy cost relief. More tax hikes without growth-supporting measures could backfire.
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Effective Date: 15th July 2025
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