Britain’s economy expanded by 0.1% in August, defying forecasts for a contraction and providing a modestly stronger platform for Chancellor John Healey’s first Budget later this month.

The Office for National Statistics said the increase followed stronger growth in June and July, while output across the three months to August rose by 0.7%. The figures point to continued resilience in the economy, but the limited monthly increase also underlines the weakness facing businesses as policymakers prepare to set tax and spending plans.

Production drives unexpected growth

August’s expansion was driven principally by production, including manufacturing, oil and gas extraction and energy supply. The result was better than the 0.1% decline economists had expected, according to a Reuters poll.

The performance offers some relief for the Treasury ahead of the Budget. A stronger growth profile can support tax receipts and reduce pressure on the government to deliver measures aimed at stimulating demand, although the monthly figure remains too weak to suggest a decisive recovery.

Budget backdrop remains difficult

The data arrive as businesses and financial markets assess the likely direction of Healey’s Budget. Banks have expressed concern that further tax increases could add to the sector’s existing burden and weaken the City’s competitiveness.

Business surveys have also pointed to a fragile outlook. Private-sector growth has slowed, while rising energy and fuel costs have pushed up input-price inflation and weighed on confidence and hiring.

That combination leaves the Chancellor facing a narrow path: maintain fiscal credibility while avoiding measures that could further restrain investment and household spending. The August figures improve the immediate picture, but do little to remove the broader risks surrounding the Budget.

Resilience without momentum

The economy’s 0.7% growth over the three months to August suggests that activity has not stalled, even as the pace of expansion has moderated. Production provided an important lift in August, but sustained growth will depend on whether services and business investment strengthen in the months ahead.

For companies, the figures are likely to reinforce a mixed message. The economy has proved more resilient than expected, yet subdued monthly growth, higher costs and uncertainty over taxation continue to complicate decisions on hiring and capital spending.

The Budget, scheduled for later in October, will now be judged against an economy that is growing—but only marginally. The August data give Healey limited breathing room, rather than a clear mandate for a major change in policy.