The economy returned to growth in August with GDP inching forward by 0.1%.
It will come as a relief to Chancellor Rachel Reeves as she prepares her Autumn Budget.
However, there was also less welcome news from the Office for National Statistics (ONS) which downgraded its estimate for GDP in July from flat to a 0.1% fall.
The data points to an economy growing only slowly that has not delivered the stronger growth that Labour promised before last year’s election.
The three month rate of growth up to August was 0.3%, the ONS said, while Britain’s economy was 1.3% bigger than it was in August last year.
The dominant services sector saw no growth for the second consecutive month, while the productive sector, which includes manufacturing, advanced 0.4% and construction slipped 0.3%. Manufacturing was one of the brighter spots with 0.7% growth.
A Treasury spokesperson said: “ We have seen the fastest growth in the G7 since the start of the year, but for too many people our economy feels stuck. Working day in, day out without getting ahead.
“The Chancellor is determined to turn this around by helping businesses in every town and high street grow, investing in infrastructure and cutting red tape to get Britain building.”
Growth has slowed since the Spring after a relatively strong first quarter of the year when GDP advanced by 0.7%.
However, the introduction of measures announced in last year’s Budget, including higher employer National Insurance Contributions, appear to have taken the steam out of business confidence.
Growth slowed to just 0.3% in the second quarter before slipping in July, the first month of the second half of he year.
The GDP figures were in line with City forecasts although economists said there were clear signs the economy is slowing.
Ruth Gregory of forecasters Capital Economics said: “The meagre rise in real GDP in August suggests growth is still being hampered by high interest rates, higher taxes and soft overseas activity. With business sentiment on the floor and employment still falling, we doubt growth will improve much in Q4.
She added:” The hikes in taxes for businesses that took place in April this year are undoubtedly playing a part in restraining growth .”
The latest GDP figures come just over a month before the Chancellor is due to deliver one of the most anticipated Budgets of recent years on November 26.
Yesterday she hinted strongly that both tax rises and spending cuts are on the cards to help raise the estimated £30 to £40 billion she needs to meet her “iron clad” fiscal rules. These include the pledge that day-to-day spending is funded by tax receipts, rather than borrowing.
In a Sky News interview in which she appeared to be softening up the electorate for tax rises she said “austerity, Brexit and the ongoing impact of Liz Truss’s mini-budget” as factors impacting her Budget calculations.
“There is no doubting that the impact of Brexit is severe and long lasting,” she said. “People thought the UK economy would be 4% smaller because of Brexit.”
She also appeared to confirm that the Office for Budget Responsibility had consistently he confirmed the budget watchdog had “consistently overestimated” the UK’s productivity growth and had downgraded its previous assumptions.
Samuel Edwards, head of dealing at global financial services firm Ebury, said: “The UK economy barely kept its head above water in August, posting growth of a timid 0.1% after July’s revised decline - a figure that should be sounding alarm bells for the Chancellor as the Autumn Budget draws nearer.
“Although the IMF has nudged up its UK growth forecast this week, reflecting easing tariff pressures, businesses remain on tenterhooks amid a frail jobs market and Rachel Reeves hinting at further tax hikes.
“In fact, we are hearing growing concern from businesses regarding the upcoming Budget. It’s not just about the impact on their profitability, but also about wider market volatility and the potential effects on sterling.”
“Historically, these periods of fiscal uncertainty tend to drive a ‘GBP sell’ narrative among traders leading up to major fiscal announcements. That’s fuelling an appetite for hedging as businesses look to shield themselves from risk.”
