UK economy grows 0.2% in August, in line with expectations

LONDON — The U.K. economy grew 0.2% in August on a month-on-month basis, flash figures published by the Office for National Statistics showed Friday.

Gross domestic product (GDP) came in line with the expectations of economists polled by Reuters, who had forecast growth of 0.2%.

Britain's economic growth was up 0.2% in the three months to August, compared with the 0.5% recorded in the three months to July.

The U.K.'s dominant services sector showed slight growth of 0.1% in the month to August, while production and construction output rose by 0.5% and 0.4%, respectively.

The country's economy flatlined in June and July, after previously recording modest but steady expansion in almost every month this year. Britain emerged from a shallow recession at the start of the year.

Finance Minister Rachel Reeves welcomed the data, saying returning the economy to growth is the government's "number one priority."

"While change will not happen overnight, we are not wasting any time on delivering on the promise of change," she said in a statement. The new Labour administration was voted into power in July during snap elections.

The reading comes as Reeves is set to deliver her Autumn Budget at the end of this month, with tax hikes and spending cuts expected as she tries to overcome an estimated £22 billion ($29 billion) black hole in the public finances. The Conservative opposition party, which led the country until snap elections earlier this year, deny the gap.

Reeves has also hinted that she may change the country's debt rules to free up more cash to spur investment.

The government has said the plans are part of its vision for an era of "national renewal," as it attempts to inject some optimism into the public pysche after painting a gloomy picture over the state of the economy.

Lindsay James, investment strategist at Quilter Investors, said Reeves faces a "tricky balancing" to ensure her decisions don't stifle further economic growth.

"With interest rates beginning to fall, the responsibility has shifted from the Bank of England to Rachel Reeves, who must now make critical fiscal decisions. She and the Prime Minister have indicated that 'pain' is necessary for future prosperity, but there is a real risk of overcorrection at the expense of economic growth," she said.