2nd October 2026
It is becoming difficult to open the news without finding another reason to worry about Britain's economy.
Diesel has reached around £2 a litre. Inflation has moved back above 3%. Government borrowing is running ahead of forecast. Gilt yields are high. Businesses are struggling with rising costs and the Chancellor faces difficult choices ahead of the Budget on 28 October.
Yet there is another side to the story.
Britain's economy is not currently in recession.
In fact, the latest figures show that the economy has continued to grow.
GDP increased by 0.4% in the three months to July 2026, following growth of 0.4% in the three months to June and 0.6% in the three months to May. July itself produced growth of 0.4%.
That makes eight consecutive three-month periods in which GDP has grown.
It is hardly an economic boom, but it is a long way from an economy in freefall.
Even GDP per head is improving
Perhaps more significant for households is what is happening to GDP per person.
In the second quarter of 2026, real GDP per head increased by 0.4% and was 1% higher than a year earlier.
That matters because overall GDP can rise simply because the population is growing. GDP per head gives a better indication of whether economic output is increasing relative to the number of people in the country.
Again, the improvement is modest, but it is an improvement.
Wages are another small piece of good news
There is also evidence that earnings are finally increasing faster than prices.
The latest ONS figures showed regular pay rising by 3.4% over the year, while real regular pay, after allowing for CPIH inflation, increased by 0.3%.
Using CPI rather than CPIH, regular pay was 0.4% higher in real terms.
That means workers have, on average, been gaining a little purchasing power rather than continually losing it to inflation.
It is not enough to make people feel prosperous, particularly after several years of substantial price increases.
But it is an important change from the period when inflation was rising much faster than wages.
So why does everything feel so gloomy?
Because the improvement in the economy is being accompanied by a very different problem.
The level of prices remains high.
Inflation was 3.1% in August, up from 2.9% in July. Transport, particularly motor fuels, was the largest upward contributor to the monthly increase in the inflation rate.
This is where the £2 diesel story becomes important.
The economy can be growing while the cost of running a car, heating a home, transporting goods or operating a business is increasing.
A growing economy does not automatically mean that households feel better off.
That distinction is easily lost in the headline GDP figures.
The Government has one piece of relatively good news on borrowing
Even the public finances are not entirely negative.
Government borrowing in the financial year to August was £77.3 billion, which was £2.2 billion lower than during the same period last year.
Debt as a percentage of GDP was also lower than a year earlier.
But there is a large qualification.
The £77.3 billion was £8.1 billion higher than the OBR had forecast.
August alone produced borrowing of £18.3 billion, £2.9 billion more than a year earlier and £3.5 billion above the OBR forecast.
So the Government is not facing a public-finance disaster in the sense of borrowing suddenly exploding compared with last year.
The problem is that the improvement is not happening as quickly as the Government's plans assumed.
That is a much more subtle problem, but an important one for the Budget.
The Budget therefore starts from a mixed picture
There are genuine positives.
The economy is growing.
GDP per head is growing.
Real wages are growing, albeit slowly.
The economy has avoided recession.
Services output continues to expand and has been the main contributor to recent growth.
But there are equally genuine pressures.
Inflation is above target.
Fuel prices are feeding directly into inflation.
Business costs remain high.
Government borrowing is above forecast.
And debt remains close to £3 trillion, equivalent to 93.8% of GDP at the end of August.
This is why the 28 October Budget is going to be difficult.
The Chancellor needs an economy capable of generating stronger growth, but also has to deal with public spending pressures and a borrowing position that is not giving the Government as much room as hoped.
Perhaps the biggest danger is confusing growth with prosperity
This may be the most important point for households in Caithness and elsewhere.
Britain can have economic growth without everybody feeling that life is getting easier.
A business can have higher sales but lower profits because diesel, wages, insurance and electricity have increased.
A household can have higher wages but still feel poorer because food, energy, motoring, insurance and housing costs have risen.
A Government can collect more tax while simultaneously finding that its spending commitments are rising even faster.
All three can happen at the same time.
And that is broadly where Britain appears to be now.
The economy is not as gloomy as the headlines sometimes suggest.
But neither is it comfortable.
The good news is that the underlying economy is still moving forward. The bad news is that the improvement is not yet strong enough to make the country's financial problems disappear.
That leaves the Chancellor with an awkward task on 28 October.
The Budget does not have to rescue an economy in recession.
It has to find a way of strengthening an economy that is growing while dealing with inflation, expensive borrowing and a public sector whose costs are rising faster than the Government would like.
That may prove to be a rather more difficult balancing act.