UK economic activity showed resilience in August, with business activity expanding for a second consecutive month, Barclays said in a note on Monday. The flash composite Purchasing Managers' Index rose to 52.5 from 52.2 in July, exceeding expectations of 51.5 and supporting Barclays' forecast for third-quarter GDP growth of 0.2% quarter-on-quarter.
The services sector led the expansion, with the services PMI increasing to 52.8 from 51.8, driven by improved domestic demand. Manufacturing output, however, slowed to 51.2 from 52.9, reflecting elevated cost pressures and ongoing geopolitical uncertainty. Barclays noted that risks to its third-quarter GDP estimate are skewed to the upside, citing solid carryover from the second quarter and strong investment in information and communication technology equipment.
Retail sales declined 0.5% month-on-month in July, matching consensus estimates, following two months of firm growth attributed to favorable weather and promotional activity. Over the three months to July, retail sales rose 1.1%, though non-food retailers reported that promotions were pulled forward into June this year, weighing on July figures.
The labor market showed signs of softening. The unemployment rate held steady at 4.9% in the three months to June, matching Barclays' forecast but exceeding both consensus expectations and the Bank of England's Monetary Policy Committee July projection by 0.1 percentage point. Employment fell by 6,000 on the three-month measure, while payrolls contracted by 13,000 in July. Vacancies declined by 4,000 over the three months to July, and private-sector wage growth slowed to 2.8% year-on-year on a three-month basis.
Inflation pressures persisted, with headline consumer price inflation accelerating to 2.9% year-on-year in July from 2.6% in June. Barclays attributed the increase to a 13% quarter-on-quarter rise in the third-quarter Ofgem energy price cap. Core inflation remained unchanged at 2.6% year-on-year. The bank revised its 2027 annual average inflation forecast up by 0.1 percentage point to 2.5%, citing a higher energy price path, while leaving its 2026 forecast at 3.0%.
Public sector net borrowing totaled £56.7 billion through July, about £2 billion above the Office for Budget Responsibility's March Economic and Fiscal Outlook projection. Barclays expects full-year borrowing to reach £120.4 billion, £5 billion more than the OBR's forecast.
Barclays did not provide an agenda for the upcoming Jackson Hole Symposium but stated it expects at least one Bank of England Monetary Policy Committee member to attend.
