UK economy set to contract after strong summer, experts say

The UK economy is forecast to shrink in August after a stronger-than-expected summer, driven by a slowdown in services and questions about how AI-driven activity has affected output. Economists say the August dip could follow a brief gain in June and July, giving policymakers and businesses a cautious outlook for the months ahead.

What changed in the latest forecast

Economists expect the Office for National Statistics to report a 0.3% fall in gross domestic product (GDP) for August. This would mark a reversal after a 0.3% rise in June and a 0.4% rise in July, the latter helped by a boost from the services sector and higher business use of AI. A contraction in August would indicate that the economy did not sustain the momentum seen earlier in the summer.

Who is affected

All major parts of the economy could be weaker in August, with services—especially professional services—and other service-based industries cited as likely to contribute to the decline. Households may feel the impact through a slower pace of wage growth and potential changes in living costs, while businesses could face a tighter environment for investment and hiring if output falls again.

Practical next steps for readers

1) Monitor updated GDP numbers from the Office for National Statistics, due to be released shortly. 2) If you’re a consumer, plan for continued price and wage uncertainty by budgeting for essential expenses and avoiding large, non-essential borrowings. 3) If you’re a business owner, review cash flow and input costs; consider scenarios where services demand could weaken and where AI-assisted productivity has already helped margins. 4) For investors, consider the potential for volatility around a data release and how sector exposure to services may influence portfolio risk. 5) Policymakers may weigh whether current monetary or fiscal conditions remain appropriate, given any ongoing weakness in output.

Limits of the data and open questions

GDP is a monthly forecast and can be revised as new data comes in. Economists’ estimates rely on models and partial data, so the exact August figure may differ from projections. Important questions include how much AI-driven activity is captured in official statistics, whether the August drop reflects a temporary pause, and how service-sector performance evolves in the coming months.

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