The British pound held firm around the $1.34 mark on Thursday after fresh data showed that the United Kingdom’s economy expanded modestly in August 2025, in line with forecasts. The latest update from the Office for National Statistics (ONS) indicated that monthly real gross domestic product (GDP) grew by 0.1% in August, following a revised contraction of 0.1% in July.
According to the report, the UK’s production sector posted a 0.4% increase during the month, while the services sector remained flat and construction activity dipped by 0.3%. Over the three months to August 2025, GDP rose by 1.5% compared with the same period a year earlier.
The ONS data revealed that services output expanded by 1.8%, construction by 1.3%, while production output declined by 0.4%. On a year-on-year basis, GDP was 1.3% higher in August compared to the same month in 2024, reflecting a gradual but steady recovery in economic activity.
The services sector, which accounts for nearly 80% of the UK economy, recorded no overall growth for the second consecutive month. Of the 14 subsectors tracked by the ONS, seven reported growth in August. The strongest performance came from administrative and support service activities, which grew by 1.0%, driven by a 5.3% surge in rental and leasing operations — the subsector’s largest increase since July 2020. The report noted that this industry segment has now expanded for nine consecutive months, underscoring its resilience amid broader economic stagnation.
Finance Minister Rachel Reeves received a modest reprieve from the data ahead of the government’s upcoming budget announcement scheduled for November 26. Reeves, who has previously hinted at potential fiscal tightening, reaffirmed her commitment to maintaining economic and fiscal stability while signaling that tax adjustments are being considered.
Speaking to reporters ahead of an international finance summit in the United States, Reeves said the government is reviewing “further measures on tax” and public spending to ensure the UK’s finances remain sustainable. Her remarks come amid growing speculation that the chancellor may introduce new tax increases in the November budget following a series of policy reversals and mounting fiscal pressures.
According to BBC reports, Reeves implemented tax hikes worth £40 billion annually in her first budget last November, including increased payroll taxes for employers. Despite promising not to repeat the move, weakening fiscal conditions may force her hand once again.
In financial markets, currency traders increased bets on potential Bank of England (BoE) rate cuts in 2026, even as the International Monetary Fund (IMF) warned that UK inflation is likely to remain the highest among G7 nations through next year. The IMF urged the BoE to take a cautious approach to monetary easing to avoid reigniting inflationary pressures.
Over the three months to August 2025, the UK economy expanded by 0.3% compared to the previous three-month period ending in May, slightly higher than the 0.2% growth recorded in the quarter to July. Services output rose by 0.4% during the same period, while production declined by 0.3%, a smaller contraction than the 1.4% drop reported earlier. Construction output increased by 0.3%, a marginal improvement from previous readings.
While the latest figures signal modest progress, economists caution that the UK’s growth trajectory remains fragile amid high borrowing costs, persistent inflation, and limited consumer spending. Nevertheless, the data offers reassurance that the economy is not slipping into contraction, providing policymakers with some breathing room ahead of next month’s fiscal announcement.
