Still not fizzling out
August GDP beat the consensus for the fourth month running. Output is up 1.3% since the war began, and 2026 now beats every independent forecast even if the economy does not grow again this year.
First published in Noise Cancelling
Once again the UK economy has grown when the consensus expected it to shrink. The ONS said today that GDP rose 0.1% in August. Economists had pencilled in a 0.1% fall. That is the fourth month in a row the outturn has beaten the consensus. July’s 0.4% was left unrevised and June was revised up to 0.4%.
The longer view is stronger still. Output in the three months to August was 0.7% higher than in the previous three months, and 1.8% higher than a year earlier, the fastest annual rate since the autumn of 2022. August on its own was 2.1% up on August last year. If September merely matches August, the third quarter will come in at about 0.7%.
The war was supposed to stop this
War broke out in the Middle East in late February. Since then UK output has risen by 1.3%. The view at the time, and in most of the commentary since, was that higher energy prices and higher borrowing costs would push the economy towards stagnation or worse. Since February the economy has grown in four months, been flat in one and fallen in one.
Up 1.3% since the war began
The arithmetic for the year is now hard to argue with. If the economy does not grow at all between now and December, 2026 growth still comes out at about 1.5%. The Treasury’s September survey of independent forecasters has an average of 1.2%, and the most optimistic forecaster in it is at 1.4%. In September I said the consensus needed six months of zero growth to be right. It now needs output to fall by almost 1% and stay down for the rest of the year. My favourite economist and I have been on the other side of this argument all year, and so far the data have been on our side.
No growth at all, and 2026 still beats every forecast
About to fizzle out, again
None of this has changed the commentary. The reporting of today’s figures led with economists’ warnings that the resilience “may fizzle out” in the second half because of rising energy costs. It has been about to fizzle out since February, and it hasn’t. There is a line, usually credited to Einstein, about doing the same thing over and over and expecting a different result.
There are soft spots, and I don’t want to pretend otherwise. Services were flat in August and construction fell. Consumer-facing services dropped 0.3%, their second monthly fall, with sport and recreation down 7.1% and restaurants and bars down 2.7%. August’s growth came from manufacturing, up 1.2%. But over three months services grew 0.9% and consumer-facing services 0.4%, and the largest single contribution to growth over the past year came from computer programming.
I can’t tell you what September will show. What I can say is that an economy which has grown 1.3% through an oil shock and a sharp rise in gilt yields is not one on the edge of stalling. The forecasters who keep saying it is have been wrong every month since February.
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