UK economy shows surprising strength ahead of first budget
UK services PMI hits six-month high, consumer confidence at two-year high, retail trend strong, but inflation and deficit remain risks.
Britain's economy is showing unexpected resilience, with business surveys and consumer confidence improving ahead of the new government's first budget in October. The data provides an early boost for Prime Minister Andy Burnham and finance minister John Healey, even as inflation and public finances remain concerns.
The services sector, the backbone of the economy, grew at its fastest pace in six months in August, according to the S&P Global Purchasing Managers' Index. The reading of 52.8 beat all forecasts in a poll of economists and rose from 52.1 in July. Manufacturing also showed strength, with the Confederation of British Industry's order book gauge hitting its highest level since November 2024, helped by the strongest export orders in four years.
Consumer sentiment is also improving. GfK's consumer confidence index rose to -14 in August from -17 in July, reaching a two-year high. The gauge of major purchase sentiment hit its highest since December 2021. Other surveys from YouGov/Cebr, BRC-Opinium, Barclays, and LSEG/Ipsos all point to a brighter mood among households.
Retail sales volumes dipped 0.9% in July, but that followed a period of strong growth. Over the three months to July, sales were 4% higher than a year earlier — the strongest growth on that measure in five years.
The economy expanded by 0.3% in June and 0.4% in the second quarter, led by services. That puts Britain on track for the fastest growth among G7 nations in the first half of the year, though some economists caution that inadequate seasonal adjustment may be flattering the figures. The Office for National Statistics noted strong investment in tech equipment and growth in AI-related industries.
Despite the upbeat data, challenges remain. Consumer price growth is expected to exceed 3% in the coming months, and the war on Iran could push energy prices higher. Friday's PMI surveys also showed a pickup in corporate price pressures. Government borrowing in the first four months of the financial year is a couple of billion pounds higher than projected, though the ONS has revised down its borrowing estimates for every month this year, including a combined £7.5 billion reduction for May and June.