UK Economy Grows 0.1 Percent in August as Factories Offset Flat Services

Britain's economy grew by 0.1 percent in August, official figures showed on Thursday, beating forecasts of a small fall. The Office for National Statistics said growth followed a stronger 0.4 percent rise in July, and it lifted its June figure to 0.4 percent from 0.3 percent.

Factories carried the month

Production output rose 0.8 percent in August, its fastest pace in nine months, and manufacturing rose 1.2 percent. Drug makers did much of the work, with pharmaceutical output up 5.1 percent, and transport equipment output rose 1.8 percent.

Services, which make up about four fifths of the economy, were flat after rising 0.5 percent in July. Shops and firms that face households directly had a weaker month. Consumer facing services fell 0.3 percent, restaurants and food and drink services fell 2.7 percent, and sports, amusement and recreation activities fell 7.1 percent. Construction fell 0.2 percent, its fourth monthly fall in a row.

The three month picture is stronger

Over the three months to August, the economy grew 0.7 percent compared with the three months to May. That was the eighth straight three month rise. Services grew 0.9 percent over that period, while production fell 0.2 percent and construction fell 1.0 percent. Output in August was also 2.1 percent higher than in August last year.

The ONS director of economic statistics, Liz McKeown, said the three month growth was led by services, helped by upward revisions to already strong services figures for June and July, even though services showed no growth in August itself.

What it means

Economists polled by Reuters had expected the economy to shrink by 0.1 percent in August, so even a small rise counts as a beat. The pound rose 0.4 percent against the dollar after the release, and yields on British government bonds fell. Chancellor John Healey called the figures welcome news, and the result gives the government a small boost before the autumn Budget.

The harder question sits with the Bank of England. Bank Rate stood at 3.75 percent this week, inflation was 3.1 percent in August, up from 2.9 percent in July, and the ONS pointed to real time signs of weaker consumer demand and housing activity in September. Stronger factories alone do not settle whether rates should move.

The next ONS growth figures are due on November 12. They will show whether August was a factory led blip or the start of a steadier run into the winter.