The UK's economy has seen a downward revision in its growth figures for the period between April and June, now reported at 0.5%, a decrease from an initial estimate of 0.6%. This adjustment follows a notable decline in output within the manufacturing and construction sectors, which fell more than previously anticipated.

As the Labour government gears up to unveil its first Budget in four weeks, economic growth remains a central focus of its policies. Prime Minister Sir Keir Starmer has expressed concerns about a challenging economic outlook, describing the forthcoming Budget as "painful." However, Chancellor Rachel Reeves has sought to project optimism, asserting that Britain’s "best days lie ahead."

Paul Dales, chief UK economist at Capital Economics, commented that the revised growth figures should not overly alarm the Bank of England regarding the economy's momentum. The latest data is unlikely to prompt major adjustments from the Office for Budget Responsibility (OBR), which is currently preparing its forecasts for next month’s Budget announcement.

The Office for National Statistics (ONS) reported a significant 3.1% decline in the production of transport and related equipment during this period, following a sustained growth phase. Initially, this figure was estimated at a mere 0.7% drop. The ONS indicated that car manufacturers may have reduced output in anticipation of transitioning to electric vehicle production.

Construction activity also experienced a downturn, primarily attributed to an ongoing decline in new home building; however, there are indications that this trend may be beginning to stabilize.

Dales noted that while the revised growth figures are not alarming, they could influence the Bank of England's stance on interest rates, potentially leading to further reductions. In August, the Bank cut interest rates for the first time in nearly four years, lowering them from 5.25% to 5% as inflation pressures eased.

Additionally, the ONS revised last year’s economic growth upward from 0.1% to 0.3%, reflecting stronger income data and updated industry size information. The data also revealed an increase in the household saving ratio, which rose to 10% in spring compared to 8.9% in the previous quarter, indicating that households are retaining more disposable income in savings.

Liz McKeown, director of economic statistics at ONS, remarked: "Our latest data show that household savings continue to increase and are now at their highest rate since the Covid-19 lockdowns."

As we approach the Budget announcement, these economic indicators will play a crucial role in shaping fiscal policy and public expectations.