The UK economy showed signs of growth in August, with a 0.2 per cent increase in Gross Domestic Product (GDP) after two stagnant months, according to the Office for National Statistics (ONS). This growth is seen as a positive development for Chancellor Rachel Reeves as she prepares for the upcoming autumn budget announcement.
While the growth was in line with economic predictions, ONS cautioned that there is still a trend of slowing growth compared to earlier in the year. Liz McKeown, the director of economic statistics at ONS, highlighted that while most sectors experienced growth in August, the overall trend is one of deceleration.
The upcoming budget announcement is crucial, especially with Prime Minister Keir Starmer’s earlier warning of a challenging financial situation ahead. Labour’s financial commitments will require an additional £25 billion in taxes, according to the Institute for Fiscal Studies (IFS). Reeves is exploring various options to fill this financial gap, including potential increases in capital gains tax and second home rates.
Labour’s pledge not to raise income tax, VAT, or national insurance employee contributions has limited the Chancellor’s options, leading to considerations of more creative approaches to generating revenue. One possibility is adjusting fiscal rules to allow for borrowing for infrastructure investments, potentially unlocking up to £57 billion.
However, any changes to fiscal rules come with risks, including the potential to unsettle financial markets. The IFS has expressed concerns about the impact of redefining debt metrics and the need for transparency in financial planning.
The final decisions on fiscal rules and revenue-generation measures will be announced during the autumn budget presentation on October 30. The budget will be a critical moment for the government to outline its economic strategy and address the challenges of sustaining growth while meeting financial commitments.
