The UK economy relies on manufacturing for "single-engine" flight, barely achieving growth in August

According to the Zhitong Finance APP, the UK economy saw a slight recovery in August, primarily due to a rebound in manufacturing that offset the stagnation in the dominant services sector's growth for the month.

Data released by the Office for National Statistics (ONS) on Thursday showed that after a 0.1% decline in Gross Domestic Product (GDP) in July, the indicator rebounded by 0.1% in August. This increase aligns with economists' median expectations. Specifically, factory output grew by 0.7%, exceeding expectations; the services sector remained flat for two consecutive months; and construction experienced a contraction.

These data suggest that the UK economy is likely to achieve some degree of growth in the third quarter. This is a mild positive for Chancellor of the Exchequer Rachel Reeves, who will unveil a challenging budget proposal on November 26, as businesses and consumers prepare for further tax increases. The ONS noted that unless GDP declines by 0.5% or more in September, the economy will expand this quarter.

However, these data may not alleviate concerns about the economy returning to low growth—despite the UK outperforming all other G7 countries in the first half of the year. Reeves needs to stabilize public finances through economic growth to fulfill her campaign promises of increasing public service investment and improving living standards.

Fergus Jimenez-England, a deputy economist at the National Institute of Economic and Social Research (NIESR), stated: "To revive economic momentum, the key is to restore business confidence and reduce uncertainty. The government can provide support by reserving more ample fiscal buffer funds in the upcoming budget."

In the three months ending in August, UK GDP grew by 0.3%. This data had little impact on the market, with the GBP/USD exchange rate remaining largely unchanged on Thursday.

This GDP data marks the end of a week of gloomy economic news for Chancellor Reeves.

On Tuesday, the International Monetary Fund (IMF) predicted that the UK's inflation rate would be the highest among major economies over the next two years. Just hours earlier, the UK reported an unexpected rise in the unemployment rate, raising concerns from Bank of England Governor Andrew Bailey about the economy's potential not being fully realized. Meanwhile, external rate setter at the Bank of England, Alan Taylor, warned that the risk of a "hard landing" for the UK is increasing.

Although traders expect the likelihood of another rate cut this year to be less than 40%, they have fully priced in a rate cut before March next year, as well as an additional 25 basis points cut by the end of next year. UK government bonds have recently seen an uptick.

The ONS stated that after a 1.1% decline in manufacturing output in July, the sector experienced growth in August, with 8 out of 13 sub-sectors reporting an increase in output Among them, the growth of the basic pharmaceuticals and drug formulation manufacturing industry was 3%, contributing the most to the overall growth of the manufacturing industry. The output of machinery equipment, metals, and chemical industries also increased.

Although retail sales increased in August, the service industry again failed to achieve expansion. The wholesale, entertainment and leisure, and transportation and warehousing sectors all experienced declines. The growth in the service industry mainly came from the leasing business, followed by the healthcare sector. Consumer-facing services grew by 0.1% in August, while there was zero growth in this sector in July.

Another set of data showed that UK goods imports were flat in August, while exports declined, with shipments to both EU and non-EU countries decreasing. Exports to the United States (including precious metals) fell by approximately £700 million