UK Economy Expands In August

Underpinned by services and production output, the UK economy expanded in August after contracting for the first time in six months in July, the Office for National Statistics reported Wednesday.

Gross domestic product grew 0.4 percent on month, but slightly slower than the economists' forecast of +0.5 percent.

The ONS said GDP growth for July has been revised from 0.1 percent growth to a 0.1 percent fall, mainly because of downwardly revised data for the manufacture of motor vehicles, oil and gas, and improvements to how health output is measured.

GDP remained 0.8 percent below its pre-pandemic level in August.

On the production-side, services output grew 0.3 percent in August. This follows a fall of 0.1 percent in July. Accommodation and food service activities, and arts, entertainment and recreation contributed most positively to services growth.

After gaining 0.3 percent in July, production output increased 0.8 percent, mainly because of the continued increase in the extraction of crude petroleum and natural gas. The manufacturing sector expanded 0.5 percent, following a downwardly revised 0.6 percent fall in July.

Meanwhile, construction contracted again, with output down by 0.2 percent.

The recent broadening in shortages and the fuel crisis may mean that growth has come to a near-standstill since August, Paul Dales, an economist at Capital Economics, said.

In the third quarter as a whole, GDP may have risen by around 1.4 percent sequentially, the economist said. That would be weaker than the 2.1 percent rise the Bank of England expected in September.

While the chances of an interest rate hike this year have recently risen, a weaker activity outlook means it is not a done deal, Dales added.

Another report from the ONS showed that the visible trade deficit widened to GBP 14.92 billion in August from GBP 14.09 billion in July.

The trade in services showed a surplus of GBP 11.2 billion versus GBP 11.14 billion in July. As a result, the total trade balance registered a deficit of GBP 3.7 billion, bigger than July's GBP 2.94 billion shortfall.