UK GDP Beats Forecasts As Underlying Growth Accelerates

- Three-month GDP growth accelerates to 0.7%
- Services lead expansion as production and construction lag
- Chancellor faces fiscal headroom challenge ahead of Budget
- Business resilience contrasts with cautious households


By Harry Daniels
LiveSquawk News
@HarryDaniels71


12:00 GMT | 15 October 2026


The pace of UK economic activity slowed in August, although underlying growth appeared to be holding up heading into autumn.

Data from the Office for National Statistics (ONS) showed the economy expanded 0.1% m/m, beating expectations of a 0.1% contraction but slowing from July’s unrevised 0.4% increase.

In the three months to August, GDP rose 0.7%, accelerating from growth of 0.5% in both the three months to July and June. Both earlier readings were revised up from 0.4%.

ONS director of economic statistics Liz McKeown said services led the expansion, with upward revisions to already strong growth in June and July helping lift the three-month figure, despite the sector showing no growth in August.

“Computer programming was once again the largest contributor to growth in the three months to August,” she added.

A breakdown of the figures showed services output increased 0.9% in the three months to August, up from a revised 0.7% in the three months to July.

Production contracted 0.2%, following a downwardly revised 0.7% decline in the previous three-month period, while construction output fell 1.0%, after a positively revised 0.2% drop.

Looking at the longer-term picture, McKeown noted that the strength in services extended beyond computer programming to several business-facing industries, including legal services, research and development, and advertising.

Susannah Streeter, chief investment strategist at Wealth Club, said the economy was showing greater resilience in the face of the energy crisis and heightened geopolitical tensions.

“Growth hardly shot the lights out in August, coming in at 0.1%, but a contraction had been expected given the deep uncertainty surrounding the repercussions of the Middle East conflict.”

Fiscal Headroom
https://www.livesquawk.com/image/ons_gdp_chart0.jpg
Source: ONS

With roughly two weeks until Chancellor John Healey delivers his first Budget, Thursday’s figures offered some encouragement. However, the slowdown in monthly growth and continued inflation pressures complicate efforts to preserve fiscal headroom.

Speaking to reporters on the sidelines of the IMF Annual Meetings in Bangkok, Healey welcomed the stronger-than-expected GDP figures and stressed the importance of protecting the economy’s resilience.

On Wednesday, the IMF upgraded its UK economic forecast for 2026 to 1.3% from 1.0%, while predicting growth would slow to 1.2% in 2027. Inflation is forecast at 3.3% this year and 2.8% next, with the Fund stressing the need for the government to rebuild fiscal space.

Businesses outpace households

Paul Dales, chief economist at Capital Economics, said the latest figures added to signs of a divergence within the economy, with businesses performing well, partly supported by AI-related spending, while households were becoming more cautious.

Dales estimated that if GDP remained flat in September, the economy would expand by a solid 0.7% q/q in Q3, well ahead of the Bank of England’s 0.4% forecast.

He added that even if higher inflation resulted in no growth in Q4, GDP would still rise 1.5% across 2026.

“In other words, the economic backdrop appears a bit more supportive of inflation than we thought,” he concluded.

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