Is it enough for the Bank of England to adjust interest rates again?
The UK economy grew slightly in August, expanding by 0.1% compared to July, according to figures published by the Office for National Statistics (ONS) on Thursday.
The ONS also revised July’s GDP figure to show a 0.1% contraction, having previously reported no change. Over the three months to August, GDP grew by 0.3%, a marginal improvement from the previous period.
“Economic growth increased slightly in the latest three months,” said ONS director of economic statistics Liz McKeown. “Services growth held steady, while there was a smaller drag from production than previously.
“Continued strength in business rental and leasing and healthcare were the main contributors to services growth, partially offset by weaknesses in some consumer facing services, while wholesalers also fared poorly.”
GDP grew 0.3% in the three months to August 2025. Services (+0.4%) and construction (+0.3%) both grew, but production contracted (-0.3%).
— Office for National Statistics (ONS) (@ONS) October 16, 2025
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The weaker-than-anticipated growth figures emerge as Chancellor Rachel Reeves prepares for the November Budget against a backdrop of fiscal strain.
While the latest GDP figures maintain the UK’s trajectory to be the second-fastest growing economy among the G7 nations this year, the annual growth rate of 1.3% is not expected to eliminate the need for tax increases in the forthcoming Budget, with economists estimating a fiscal gap of between £20 billion and £30 billion.
The Bank of England, which kept interest rates at 4% in September, continues to balance persistent inflation with subdued economic expansion. Recent labour market data indicates a rise in unemployment and a slowdown in private sector wage growth, suggesting some easing of inflationary pressures. Nonetheless, the central bank is expected to maintain its current policy stance, with further rate cuts not anticipated until 2026.
“Growth in GDP is encouraging and in line with the IMF’s prediction this week that the UK will have the second-fastest growing economy in the G7 this year,” Richard Pike, chief sales and marketing officer at financial services software provider Phoebus. “But it doesn’t change the fact that the economy remains finely balanced.
“Inflation is still high and predicted to remain there, and unemployment is rising. That combination makes it harder for the Bank of England to justify cutting rates in November. For now, stability is likely to be the bank’s priority. A premature rate cut could risk reigniting price pressures just as they’re starting to ease.
“Attention will now turn to the Autumn Budget. The chancellor faces the difficult task of supporting growth without fuelling inflation. Targeted investment in productivity and innovation would be far more effective than broad tax giveaways. Today’s figures are a positive signal but not enough to declare victory. The recovery is still fragile and will need careful management from both the Bank of England and the Treasury in the months ahead.”
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