The UK economy is forecast to have contracted in August, dragged down by a decline in the services sector, according to economists.
The Office for National Statistics will publish the latest monthly UK economic growth data on Thursday October 15. Economists expect the figures to show a “correction” after stronger-than-expected growth in June and July.
In June, UK gross domestic product (GDP) grew by 0.3%, boosted by hospitality and leisure firms benefiting from football fever and prolonged hot weather. GDP then unexpectedly rose by 0.4% in July, supported by the services industry and businesses increasing their use of AI.
Services sector leads expected decline
Robert Wood, chief UK economist at Pantheon Macroeconomics, predicted the latest statistics will reveal a 0.3% decline in August. He expects all the main parts of the economy to report weaker output, with the key three service sectors – professional services, administration, and information and communication – showing notable weakness.
The services sector had reported a particularly strong July, rising by 0.6%, as it benefited from strong demand for AI and cloud computing services.
Mr Wood said: “The ‘big three services’ – which together account for 19.7% of GDP – had a stonking July, with the strongest monthly growth since April 2022.”
“The crucial judgment for August is how much of that surge has unwound.”
Manufacturing flatlines, outlook uncertain
Data is also likely to show the manufacturing sector roughly flatlined for the month, with growing output from some factories offset by weakness in the automotive sector.
Thomas Pugh, chief economist at RSM UK, predicted a shallower decline of 0.1% for August. He stressed, however, that the weaker monthly performance should not “obscure the broader trend of resilience”, forecasting growth of between 0.4% and 0.5% for the third quarter of 2026 as a whole.
He said there is still significant uncertainty over near-term economic growth as rising inflation threatens to weigh on businesses and consumers.
“The outlook beyond the summer is more difficult,” Mr Pugh said.
“Inflation is likely to rise to around 4.5% early next year, unemployment will probably trend back above 5%, and the Budget may add to uncertainty in Q4.”
“Together, those pressures are likely to slow growth sharply in the final quarter of this year and ensure a slow start to 2027.”
