Key facts
- Britain's economy grew 0.3% in June and 0.4% in the second quarter, driven by the services sector.
- The services sector PMI reached a six-month high of 52.8, indicating strong growth.
- Consumer confidence rose to its highest level in two years, with major purchase sentiment at its peak since December 2021.
- Despite a July dip, retail sales volumes excluding fuel were up 4% year-on-year in the three months to July.
- The UK government recorded an unexpected budget deficit last month.
- Inflation and public finances remain key risks, with consumer price growth expected to exceed 3%.
Britain's economy is showing surprising signs of strength, with the services sector experiencing its best growth in six months and consumer confidence reaching a two-year high. This early boost comes as a welcome development for Prime Minister Andy Burnham and Finance Minister John Healey ahead of Healey's first budget in October.
The economy expanded by 0.3% in June and 0.4% over the second quarter, with strong performance in the services sector contributing significantly. The S&P Global Purchasing Managers' Index for services rose to 52.8, exceeding economists' expectations. Investment in technology and AI-related industries is also becoming visible in economic data.
Consumer sentiment has improved across multiple surveys, with GfK's consumer confidence index rising to -14 in August. While retail sales volumes saw a slight drop in July, they remain robust year-on-year. The Confederation of British Industry reported its highest manufacturing order books since November 2024, driven by strong export orders.
Despite these positive signs, significant challenges persist. High inflation, exacerbated by global energy price concerns linked to the Iran war, remains a primary risk. Consumer price growth is expected to surpass 3%, and corporate price pressures are picking up. The government also recorded an unexpected budget deficit last month, and borrowing for the fiscal year is slightly higher than projected, though previous borrowing estimates have been revised downward.