The United Kingdom’s economy experienced an unexpected expansion of 0.4% in July, outperforming analyst predictions that had anticipated no growth for the month. This latest figure builds upon a 0.3% increase recorded in June, following a period of stagnation in May.
According to the Office for National Statistics (ONS), the services sector—particularly computer programming—played a pivotal role in this performance. Liz McKeown, the ONS director of economic statistics, noted that businesses involved in artificial intelligence and related technologies have provided a consistent boost to the sector throughout the summer months.
Beyond the tech sector, economic activity was influenced by external factors including warm weather and the football world cup. McKeown observed that these conditions created varied outcomes, noting that the effects “differed across industries, benefitting some businesses while creating challenges for others.”
Looking at the broader trend, the economy grew by 0.4% over the three months leading to July compared to the preceding quarter, offering a more stable view of underlying performance. Chancellor John Healey described the data as “demonstrating a welcome resilience, despite serious global uncertainty.”
Healey highlighted that while growth remains fragile, the UK recorded the fastest expansion in the G7 during the first half of the year. However, he cautioned that the ongoing conflict in the Middle East continues to impact domestic conditions, affecting everything from government borrowing costs to the price of a weekly family shop.
As the Chancellor prepares for his first Budget in October, he faces the challenge of managing “historic high” borrowing costs. Paul Dales, chief UK economist at Capital Economics, suggested that the resilience observed in the first half of the year has carried into the second half, though he warned that rising energy prices and borrowing costs could soon dampen momentum.
The economic outlook remains complex, with the Bank of England set to meet next week to determine interest rate policy. While many analysts expect rates to remain steady, some forecasts suggest a potential hike before the year concludes.
Despite the positive headline growth, some experts urge caution. Yael Selfin, chief economist at KPMG, warned that the figures “masks a weaker picture for households.” She pointed out that consumer-facing services, including retail and hospitality, contracted in July following earlier seasonal gains, and that high energy and mortgage costs continue to weigh on consumer spending.
Richard Carter, head of fixed interest research at Quilter Cheviot, echoed these concerns, suggesting that sustained growth may prove difficult to maintain. He noted that economic activity is likely to stall as the Budget approaches, adding that the UK remains particularly exposed to the fallout from the war in the Middle East. As the fiscal announcement nears, pressure on the government to introduce pro-growth measures is expected to intensify. The report also notes that but whether or not the government has the room to act remains to be seen, calls for pro-growth measures will get louder as the Budget nears.
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