Key facts
- UK GDP grew 0.4% in July, surpassing forecasts of zero growth.
- The services sector expanded by 0.4%, with AI and cloud computing activities showing strong growth.
- Industrial production rose 0.2% in July.
- GDP grew 0.4% over the three months to July.
- Higher oil prices and the Iran war are impacting energy costs and interest rate expectations.
- Chancellor John Healey is preparing for his first budget on October 28.
The UK economy experienced unexpected growth in July, with Gross Domestic Product (GDP) expanding by 0.4%, surpassing the zero growth forecast from City economists. This resilience is partly attributed to the rapid expansion of artificial intelligence (AI) within the services sector, particularly in professional services, information technology, and administrative services.
Official figures from the Office for National Statistics (ONS) indicated that the services sector grew by 0.4%, with businesses involved in AI and cloud computing reporting significant turnover increases. Industrial production also saw a rise of 0.2%, driven by manufacturing output offsetting declines in mining and energy supply.
Over the three months to July, GDP growth remained steady at 0.4%. Economists noted that household and business spending continued despite the impact of an energy shock on disposable incomes. However, longer-term economic prospects are viewed with caution due to global uncertainties, including the ongoing conflict in the Middle East, which has led to higher energy costs and increased interest rate expectations.
Chancellor John Healey is set to present his first budget on October 28, with the current economic strength providing a positive backdrop. Experts, however, warn that rising global oil prices could fuel inflation and prompt further interest rate hikes by the Bank of England. Market expectations suggest up to four quarter-point rate increases over the next year, though a September rate rise is considered unlikely as policymakers hope a sluggish economy will eventually control inflation.