The U.K. economy experienced a moderate rebound in August, driven by the services sector. This provides evidence that the country has a potential path to escape a recession, despite uncertainty in the economic landscape.
According to data from the Office for National Statistics, gross domestic product (GDP) increased by 0.2% compared to the previous month. This recovery comes after a downwardly revised contraction of 0.6% in July, matching economist forecasts.
However, recent data reveals the fragile nature of economic growth in the U.K. GDP has fluctuated between growth and contraction every month since February.
High inflation and elevated interest rates set by the Bank of England have made it difficult for consumers to cope with the rising cost of living. In addition, strikes in the health and transport sectors have added further complexity to the economic outlook for August.
In August, consumer prices were 6.7% higher than the same month in 2022, slightly lower than the 6.8% inflation recorded in July. The Bank of England maintained its key interest rate at 5.25% last month.
Nonetheless, looking at the three months leading up to August, which provides a better understanding of underlying trends, the economy grew by 0.3%.
Within this period, the U.K.’s services sector grew by 0.4% after a decline of 0.6% in July. The science and technology industry, along with education due to the new school year, were the main contributors to this rebound.
However, the services sector stood as the only sector with a positive contribution to monthly GDP growth. Industrial production fell by 0.7% in August, indicating contraction in three out of the past four months. Construction output also declined by 0.5%. Even the consumer-facing segment of the services sector, including retail trade and food services, experienced a 0.6% decrease.
Although some of the strength seen in August’s GDP can be attributed to temporary factors, leading indicators suggest a contraction in the economy for September, according to Ruth Gregory, deputy chief U.K. economist for Capital Economics.
Despite this, the overall rise in August’s GDP raises hope that the economy will successfully avoid a recession.