The UK economy in August 2025 managed to eke out modest growth, offering a glimmer of resilience amid persistent challenges and mounting anticipation ahead of the government’s crucial Autumn Budget. According to the Office for National Statistics (ONS), gross domestic product (GDP) rose by 0.1% in August, a figure that, while positive, underscores the fragile state of the British economy as it navigates high inflation, sectoral disparities, and looming fiscal decisions.
This slight uptick was primarily driven by a rebound in manufacturing output, which grew by 0.7% in August, helping offset stagnant performance in the services sector and a contraction in construction. The ONS data, released on October 16, 2025, also revealed that July’s growth figure was revised downward to a 0.1% contraction, highlighting the volatility and uncertainty that continue to characterize monthly economic indicators.
Looking at the broader picture, the economy expanded by 0.3% in the three months to August 2025 compared with the previous three months, marking a small improvement over the 0.2% growth recorded in the three months to July. Over the past year, GDP was up by 1.3% in August 2025 compared with the same month in 2024, according to the ONS. Still, these numbers remain lackluster by historical standards and have prompted economists and policymakers alike to caution against over-optimism.
Liz McKeown, ONS director of statistics, summarized the situation: “Economic growth increased slightly in the latest three months. Services growth held steady, while there was a smaller drag from production than previously.” Yet, as the data show, the mainstay services sector—which encompasses retail, hospitality, and finance—saw no growth in August. Over the three months to August, services output was up 0.4%, with particular strength in human health and social work activities (up 1.4%), administrative and support services (up 1.4%), and professional, scientific, and technical activities (up 0.6%). However, these gains were partially offset by declines in wholesale and retail trade, other service activities, and education.
Manufacturing, the largest component of the production sector, was the standout performer in August, with output rising in 8 of its 13 subsectors. Notably, the manufacture of basic pharmaceutical products and preparations jumped by 3.0%, while machinery and equipment, basic metals, and chemicals also registered gains. Despite this monthly boost, manufacturing output showed no growth over the three-month period, reflecting the stop-start nature of the sector’s recovery.
The construction sector, meanwhile, delivered mixed results. Output fell by 0.3% in August, driven by a sharp drop in repair and maintenance, particularly private housing repair and maintenance, which tumbled by 4.3%. New construction work, however, grew by 0.5% on the month. Over the three months to August, construction output was up 0.3%, though this was a slower pace than earlier in the year. Weakness in industries supplying the construction sector—such as cement, glass, and steel—also weighed on performance, with the Minerals Products Association noting that UK cement production had slumped to a 75-year low.
Consumer-facing services, a bellwether for household sentiment, offered little comfort. Output in this category decreased by 0.6% in the three months to August, with travel agencies and personal services leading the declines. There was a marginal 0.1% increase in August, thanks to gains in food and beverage services and retail trade, but these were not enough to signal a robust turnaround.
Economists have been quick to temper any enthusiasm about the headline growth figures. Yael Selfin, chief economist at KPMG UK, told the BBC, “While the economy had returned to growth in August, the outlook remains weak.” She pointed to the ongoing pressure on households from higher costs for essentials such as food and the uncertainty surrounding potential tax rises in the upcoming Budget as factors likely to dampen both household and business activity. “As a result, we anticipate growth to remain sluggish over the coming months,” Selfin added.
Ruth Gregory, deputy chief UK economist at Capital Economics, described August’s growth as “meagre,” citing the impact of recent tax increases on businesses, including a rise in employers’ National Insurance contributions. She suggested that the disruption to the auto sector caused by the Jaguar Land Rover cyber-attack may have even caused the economy to shrink in September.
Inflation remains a stubborn obstacle. The consumer price index stood at 3.8% in August, well above the Bank of England’s 2% target. According to Bloomberg, this sticky inflation is a key reason why the Bank of England is not expected to cut interest rates at its next meeting in early November, even as some economists argue that a weakening labor market and easing wage pressures could justify a rate reduction. Goldman Sachs analysts noted that “normalisation in measures of underlying services inflation… has stalled in recent months,” and they expect the Monetary Policy Committee to hold off on further cuts until more progress is made on inflation.
On the fiscal front, all eyes are on Chancellor Rachel Reeves, who is set to deliver the Autumn Budget on November 26, 2025. The Institute for Fiscal Studies has projected that Reeves will need to find £22 billion to meet her self-imposed borrowing rules, making tax rises or spending cuts almost inevitable. Reeves herself acknowledged, “I am looking at further measures on tax and spending, to make sure that the public finances always add up.” This is widely seen as the clearest signal yet that tax increases are on the table, with speculation swirling over which measures she might choose.
Political reactions have been swift and pointed. Shadow chancellor Mel Stride criticized the government, telling the BBC, “Growth continues to be weak and Rachel Reeves is now admitting she is going to hike taxes yet again, despite all her promises. If Labour had a plan—or a backbone—they would get spending under control, cut the deficit, and get taxes down.” Liberal Democrat Treasury spokesperson Daisy Cooper echoed concerns about the government’s approach, urging the chancellor to “quit her slowcoach approach to the economy and finally drop her damaging National Insurance hike.”
Despite the subdued domestic outlook, there is a silver lining: the International Monetary Fund recently predicted that the UK will be the second-fastest-growing advanced economy in 2025. However, the IMF also warned that the UK is likely to have the highest inflation rate among G7 nations both this year and next, largely due to rising energy and utility bills.
A Treasury spokesperson tried to strike an optimistic note, stating, “We have seen the fastest growth in the G7 since the start of the year, but for too many people our economy feels stuck. The chancellor is determined to turn this around by helping businesses in every town and High Street grow, investing in infrastructure, and cutting red tape to get Britain building.”
As the Autumn Budget approaches, the UK economy stands at a crossroads, with policymakers facing tough choices on taxes, spending, and the broader direction for growth. The coming weeks will be critical in shaping not just the economic outlook for the remainder of 2025, but the financial well-being of millions of British households and businesses.
