Emeritus Professor Joe Nellis is Head of Economic Research at MHA, the accountancy and advisory firm.

• Slowing economic growth puts further pressure on the government’s fiscal headroom.
• Corporate sector cannot face a greater tax burden.
• Chancellor must not undermine pockets of growth in the economy.

The UK economy grew by only 0.1% in August following an upbeat 0.4% expansion in July. Although the economy has demonstrated better-than-expected resilience this year, the underlying pace of growth remains weak.

The loss of momentum in August reflects the impact of continued inflationary pressures that have negatively impacted consumer confidence and spending. Businesses also continue to face tough trading conditions resulting from rising employment costs and taxation which have squeezed profitability, particularly among small and medium-sized enterprises, discouraging investment spending and recruitment activity.

Growth of 0.1% will provide only limited reassurance for the Chancellor as he prepares for the Autumn Budget. While continued economic growth should provide some support for tax revenues, the economy remains fragile. Rising debt interest costs have severely constrained fiscal headroom, with long-term government borrowing costs remaining exceptionally high.

Any decisions that raise taxes to balance the books and to meet the government's self-imposed fiscal rules carries considerable risks. Britain is approaching a tax burden that is unprecedented in the post-war period. Any further increase in the tax burden could weaken consumer spending, undermine business confidence and discourage much-needed corporate investment to boost UK productivity. But, at the same time, any significant unfunded spending commitments could unsettle financial markets and push government borrowing costs higher.

Earlier this week, the IMF’s surprisingly positive note on the UK highlighted the increased corporate investment into AI-related industries and infrastructure as a key driver of the improved growth forecasts.  At the Autumn Budget, it is important that the Chancellor does not discourage this slither of hope amongst the general doom and gloom.

He must focus on decisions that encourage business investment, support employment and strengthen long-term productivity, while also maintaining credible expenditure discipline.