UK Economy to Rebound in Services, but Budget Uncertainty Looms

Economists anticipate a rebound in services activity, with professional and administrative services, and communication sectors projected to grow. However, uncertainty surrounding the Autumn Budget may pause discretionary spending plans. The UK economy is forecast to expand by 0.1 per cent in August, but growth may slow in the latter half of 2025.

The government plans to alter the planning bill, enabling ministers to block local powers from rejecting infrastructure project applications and accelerate development. Despite this, the construction sector is anticipated to shrink by 0.2 per cent in August. Deutsche Bank's Sanjay Raja warns of potential manufacturing slump, posing downside risks to the UK's near-term economic outlook.

Vanguard economists have revised their growth forecasts for the UK in fall 2025, now expecting GDP growth of only 0.8 per cent. This is below consensus and reflects anticipated further fiscal tightening and unavoidable budget cuts following the Autumn Budget. The Chancellor's fiscal leeway is believed to have been exhausted, and the Office for Budget Responsibility is also likely to lower its short-term growth forecasts.

The UK economy's sluggish growth may prompt the Treasury to reassess its strategies ahead of the crucial Autumn Budget. The Labour government faces economic growth challenges, with potential manufacturing slumps and slower growth in the latter half of 2025. The government's planning bill amendments aim to boost infrastructure projects, but the construction sector's contraction in August suggests immediate challenges.