UK economy grows by 0.4% in July, driven by AI

Economists surveyed by Reuters had anticipated no monthly growth. The increase was primarily driven by the services sector, which rose by 0.4%. Manufacturing output grew by 0.9%, while construction saw a modest increase of 0.1%, according to figures reported by the Financial Times based on ONS data.

For the three months ending in July, economic activity also rose by 0.4%. IT and consulting services particularly bolstered this momentum, with a 4.4% increase during the period, as reported by the ONS and cited by the Financial Times.

Liz McKeown, the ONS’s director of economic statistics, noted that computer programming made the largest contribution to service sector growth in July. The statistical agency also observed that companies involved in artificial intelligence and related technologies helped support the sector.

AI supports service sector activity

The strength seen in July extends a solid first half of the year. Reuters estimates that the UK recorded approximately 1% growth during the first six months of 2026, the fastest among G7 economies during this period, although some economists caution that seasonal effects may still influence comparisons. Globally, the IMF projects growth at around 3% in 2026 despite the energy shock.

The British pound remained virtually stable against the dollar following the release of the figures. In the markets, investors are particularly focused on the effects of rising energy prices and bond yields on upcoming rate decisions.

However, this improvement occurs in a more challenging environment. The rise in oil prices above $105 per barrel raises concerns about a resurgence of inflation and weighs on financing costs. At its July meeting, the Bank of England kept its key interest rate at 3.75% and warned that the energy shock could push inflation higher in the coming months.

The GDP release thus provides a more favorable signal than expected at the start of the third quarter, but it does not eliminate the risks associated with energy prices and borrowing costs. The Bank of England is set to announce its next monetary policy decision on September 17.