Key facts
- UK economy grew 0.4% in July, up from 0.3% in June.
- AI-related sectors significantly contributed to the July growth.
- The Bank of England is expected to hike interest rates up to four times in the next year.
- The US Federal Reserve maintained its target policy rate range at 3.50% to 3.75%.
The UK economy demonstrated unexpected resilience in July, expanding by 0.4% driven by growth in services, particularly those related to artificial intelligence and cloud computing. This expansion, which surpassed economists' forecasts of zero growth, also saw a 0.2% rise in industrial production. Despite this positive economic performance, City figures anticipate that the Bank of England may proceed with as many as four interest rate hikes over the next year, a move influenced by global oil price volatility and the ongoing conflict in the Middle East.
In the United States, the Federal Reserve opted to maintain its benchmark interest rate at 3.50% to 3.75% during its July meeting. This decision was supported by a 9-3 vote, though three regional Fed presidents dissented, advocating for a rate increase. Fed Chair Warsh indicated that tightening financial conditions, as reflected in rising Treasury yields, reduce the immediate need for further rate hikes, suggesting a pause in monetary tightening for the remainder of the year. Inflation has moderated, but oil price volatility and a softening labor market present ongoing risks.