UK GDP grows 0.4% in July, beating expectations as services prop up the economy
MacroDigital Finance
The UK Office for National Statistics (ONS) reported that UK gross domestic product (GDP) grew 0.4% in July compared with June, above market expectations of flat growth at 0.0%, following a 0.3% expansion in June. On a year-on-year basis, July GDP grew 1.6%, the fastest annual growth rate since February 2025 and above economists' forecast of 1.2%. Meanwhile, growth over the three months to July held steady at 0.4%, the same as the three months to June, defying economists' expectations of a slowdown to 0.3%. Liz McKeown, ONS director of economic statistics, said the slowdown in both manufacturing and construction only partly offset continued strong growth in services, adding that artificial intelligence (AI) technology appeared to be helping drive growth in the software development sector. In the first half of 2026, the UK economy grew 1.0% overall, the highest growth rate among the Group of Seven leading industrial nations. However, some analysts noted that the strong figure may reflect seasonal factors that have not been fully adjusted. In July, the Bank of England (BoE) estimated that the economy would grow 1.1% over the whole of 2026, while Andrew Bailey, the BoE governor, told a UK parliamentary committee earlier this week that economic data published since the forecast period had been slightly stronger than expected. The report said the UK and European economies suffered less initial damage to economic growth from the US-Iran war than economists had feared when the conflict first erupted. However, the war situation this week pushed crude oil prices above 105 US dollars a barrel, with knock-on effects on government borrowing costs. At the same time, the BoE expects UK inflation to accelerate to around 3.2% late this year.
