The UK economy grew by 0.1% in August, according to figures published this morning by the Office for National Statistics. Economists had expected output to shrink by 0.1%, so a small gain counts as a modest beat. It follows growth of 0.4% in July. Over the three months to August, a smoother measure that irons out monthly noise, the economy expanded 0.7%, up from 0.5% in the three months to July and the eighth consecutive three month period of growth.
The surprise came from factories rather than shops and offices. Production output, which covers manufacturing, energy and mining, rose 0.8%, and manufacturing alone climbed 1.2%, led by a 5.1% jump in pharmaceuticals and a 1.8% rise in transport equipment. Services, which make up around four fifths of the economy, stalled at 0.0% after rising 0.5% in July. Services that deal directly with consumers fell 0.3%, with food and drink services such as restaurants and pubs down 2.7%, while construction slipped 0.2%, its fourth monthly fall in a row. For now, growth is being carried by medicine and machinery rather than the high street. Liz McKeown, director of economic statistics at the ONS, said upward revisions to "already strong services growth in June and July" did much of the work in the three month figure.
For the Bank of England, which sets UK interest rates, the release changes little. Last month it held Bank Rate at 3.75% on a six to three vote, with three members backing a rise to 4.00%. Markets now treat a quarter point increase on 5 November as close to certain, with three more priced by September 2027. An economy that keeps growing, however slowly, gives the Bank little reason to hold back while energy costs keep inflation elevated, even if the September business surveys pointed to growth of barely 0.1% a quarter. The bigger test arrives on 28 October, when the Chancellor presents a Budget expected to fund new plans through taxes or spending cuts rather than extra borrowing.
What it means for GBP/EUR
The pound gave back a little ground. GBP/EUR eased to around 1.1813 by 09:00, down 0.2% on the day, after touching 1.1865 in the previous 24 hours, close to its strongest level since June 2025. A beat this small offered little new to buy after a run in which sterling has gained around 2% against the euro in three weeks, helped by worries over French public finances and hopes of closer trade ties between the UK and the EU. Rate expectations still favour the pound, with the European Central Bank expected to hold its deposit rate at 2.50% this month while the Bank of England moves higher. The near term risk is the Budget: a package that unsettles the gilt market, where the government borrows, could undo part of the rally quickly. For a business with euro invoices to settle after the Budget, a forward contract fixes today's rate, close to a sixteen month high, for a payment due on a future date.
