The UK economy is expected to have shrunk in August, with the latest gross domestic product (GDP) data, due for release on Thursday, anticipated to show a 0.1% contraction. This forecast comes from City economists polled by Bloomberg, despite hopes that stronger-than-expected growth in June and July would continue.
The economy had grown by 0.3% in June and 0.4% in July. This earlier growth was attributed to record temperatures boosting hospitality and the services industries benefiting from AI.
However, experts suggest this positive start to Prime Minister Andy Burnham’s leadership may have faltered. Robert Wood, chief UK economist at Pantheon Macroeconomics, predicts a 0.1% decline for August, noting expected weakness across all main parts of the economy, particularly the key three service sectors.
Thomas Pugh, chief economist at RSM, also forecasts a 0.1% decline for August and describes the economic outlook beyond the summer as “more difficult.” He suggests inflation is likely to rise to around 4.5% early next year, unemployment will probably trend back above 5%, and the upcoming Budget may add to uncertainty in the fourth quarter. These pressures are expected to slow growth sharply in the final quarter of this year and ensure a slow start to 2027.
Economists have also predicted that rising inflation could lead the Bank of England to increase interest rates as many as four times by next summer. Think tank Oxford Economics stated earlier this week that a rate hike in November is becoming “ever more certain.”