The UK economy relies on the manufacturing sector as its "sole engine" for growth, and managed to achieve slight growth in August.

The UK economy saw a slight recovery in August, mainly driven by a rebound in manufacturing which offset the stagnant growth in the dominant services sector that month. Data released by the UK Office for National Statistics on Thursday showed that after a 0.1% decline in Gross Domestic Product (GDP) in July, the indicator rose by 0.1% in August. This increase was in line with the median expectations of economists. Manufacturing output increased by 0.7%, exceeding expectations; the services sector remained flat for the second consecutive month; and the construction industry experienced a contraction. These data indicate that the UK economy is expected to achieve some level of growth in the third quarter. This is a mild positive for Chancellor of the Exchequer Rishi Sunak, who is set to announce a challenging budget on November 26, as businesses and consumers prepare for further tax increases. The Office for National Statistics pointed out that unless GDP falls by 0.5% or more in September, the economy will expand this quarter. However, these data may not alleviate concerns outside that the economy is returning to low growth, despite the UK outperforming all other G7 members in the first half of the year. Sunak needs economic growth to stabilize public finances and fulfill his election promises of increased public service investment and raising living standards. Fergus Jimenez-England, Deputy Economist at the National Institute of Economic and Social Research (NIESR), stated: "To revitalize economic momentum, it is essential to restore business confidence and reduce uncertainty. The government can provide support by allocating more fiscal buffer funds in the upcoming budget." In the three months leading up to August, the UK GDP grew by 0.3%. This data had minimal impact on the market, with the pound to dollar exchange rate remaining stable on Thursday. This GDP data marks the end of a week of dim economic news for Chancellor Sunak. On Tuesday, the International Monetary Fund (IMF) forecasted that UK inflation will be among the highest in major economies over the next two years. Just hours before, the UK's unexpected rise in unemployment rate was announced, causing Bank of England Governor Bailey to express concerns about the economy's inability to fully unleash its potential. Meanwhile, external rate-setter at the Bank of England, Alan Taylor, warned of the rising risk of a "hard landing" for the UK. Although traders see the likelihood of another interest rate cut this year as less than 40%, they have fully priced in expectations of a rate cut before March next year and another 25 basis point cut before the end of next year. UK government bonds have recently seen an increase. According to the Office for National Statistics, after a 1.1% decline in manufacturing output in July, the industry saw growth in August, with 8 out of 13 subsectors experiencing output increases. Among them, the manufacturing of basic pharmaceuticals and medicinal products saw a 3% growth, contributing the most to the overall manufacturing growth. Output also increased in machinery equipment, metals, and chemical industries. Although retail sales in August saw some growth, the services sector once again failed to expand. Wholesale, entertainment and leisure, and transport and storage industries all experienced declines. Growth in the services sector mainly came from the renting and leasing activities, followed by the healthcare industry. The consumer-facing services sector saw a 0.1% increase in August, compared to zero growth in July. Another data point showed that imports of goods in the UK remained stable in August, while exports decreased, with shipments to both EU and non-EU countries declining. Exports to the US (including precious metals) decreased by approximately 700 million.