UK economy returns to growth as GDP grew 0.2% – what it means for your money

THE UK economy has grown after a two month period of stagnation, new figures reveal.

Gross Domestic Product (GDP) rose by 0.2% in August, the Office for National Statistics said.

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It comes after the economy showed no growth during in June and July.

However, quarterly figures show that GDP still increased 0.5% in the second quarter of this year.

GDP is one of the main indicators used to measure the performance of a country’s economy.

Services output was the main contributor to the growth in the three months to August, rising by 0.1%. There was also a 1.0% increase in construction output, while production output showed no growth over this period.

Liz McKeown, ONS director of economic statistics at the ONS, said: “All main sectors of the economy grew in August, but the broader picture is one of slowing growth in recent months, compared to the first half of the year.”

When GDP goes up, the economy is generally thought to be doing well.

What it means for your money

GDP measures the economic output of companies, individuals, and governments and measures the health of an economy.

A healthy economy has growing GDP, but if it stalls or falls, it’s bad news for businesses and consumers.

Most economists, politicians and businesses want to see GDP rising steadily.

This is because it usually means people are spending more, more tax is paid to the government and workers get better pay rises.

A healthy economy usually means lower inflation, rising employment, less poverty, and more money in your pocket.

Negative growth often brings with it falling incomes, job cuts and lower consumption.

The Bank of England (BoE) uses GDP as one of the key indicators when it sets the base interest rate.

This decides how much it will charge banks to lend them money, and is a way to try to control inflation and the economy.

So, for example, if prices are rising too fast, the BoE could increase that rate to try to slow the economy down. But it might hold off if GDP growth is slow.

Lower inflation is good because it means prices don’t rise as fast, putting less financial pressure on households.

The Consumer Prices Index (CPI) rate of inflation stood at 2.2% in August, following a slight rise from 2% the previous month.

However, this is still significantly lower than October 2022, when it peaked at 11.1% following soaring wholesale energy prices.

It’s important to note when inflation falls that doesn’t mean prices have stopped rising, they are just increasing at a slower pace.

The BoE will be watching the latest GDP figures closely as it decides whether to lower its base rate further in November.

The central bank cut the base rate from 5.25% to 5% in August before holding them at this rate again in September.

The next Bank of England base rate review is scheduled for Thursday, November 7. 

High street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.

If it comes down, interest rates on mortgages, loans and savings accounts tend to fall too.

Mortgage lenders also tend to bring down rates in anticipation of the base rate falling.