Key facts
- Britain's economy grew 0.4% in July, exceeding economists' forecasts.
- The UK economy expanded by 0.1% in May, driven by the service sector.
- Inflation peaked at 3.8% in the summer of 2025, influenced by higher water bills, vehicle excise duty, and increased employers' national insurance contributions.
- The unemployment rate rose to 4.9% in the three months to April 2026.
- Public sector net debt stands at about £3.1tn.
The UK economy grew by 0.4% in July, surpassing economists' forecasts and marking the fastest growth in the G7 for the first half of 2026, according to a Reuters report. This unexpected expansion comes as the new Prime Minister, Andy Burnham, faces the challenge of boosting economic growth.
Data from the Office for National Statistics (ONS) indicated that May's growth was a more modest 0.1%, primarily driven by the service sector, while production and construction sectors saw declines. Analysts noted that the economy had weathered the rise in energy prices caused by the conflict in the Middle East better than anticipated, though some described the economy as 'fragile'.
Under the previous Labour government led by Keir Starmer, the economy experienced a mixed performance. Growth was initially boosted by pre-election tax cuts from the preceding Conservative administration, but then slowed. Speculation about potential tax rises and spending cuts by Chancellor Rachel Reeves impacted business and consumer confidence. A more stable budget in autumn 2025 allowed for a pickup in investment and consumer spending, leading to strong growth in the first quarter of 2026. However, subsequent geopolitical events, including US strikes on Iran, have led to rising oil prices and supply chain disruptions, with the IMF forecasting UK growth to slow to 1% in 2026.
Inflation peaked at 3.8% in the summer of 2025, influenced by factors such as higher water bills, increased vehicle excise duty, and a rise in employers' national insurance contributions. The cost of raw materials also increased due to tariffs imposed by US President Donald Trump. The unemployment rate had risen to 4.9% by April 2026, with companies citing higher employment costs and global political instability as contributing factors. Artificial intelligence was also mentioned as a factor discouraging new hiring.