The UK economy expanded by 0.4 percent in July, a stronger-than-expected performance driven by growth in the services sector, particularly in industries linked to artificial intelligence (AI). The Office for National Statistics (ONS) reported the figure on Monday, surpassing economists’ forecasts of no growth and marking an acceleration from June’s 0.3 percent rise.
Services output increased by 0.4 percent, led by the information technology sector, which saw significant contributions from companies involved in AI and related technologies. This sector’s expansion included a 4.4 percent rise in output from computer programming and consultancy in the three months to July, according to ONS data. Manufacturing also posted growth, rising 0.9 percent in July, with gains partly supported by computer and electronics production. Construction activity increased modestly by 0.1 percent.
The headline figures reflect unexpected resilience in the UK economy amid global financial uncertainties, including a sharp sell-off in bond markets. Rising bond yields, reaching their highest levels since 2007, have increased government borrowing costs and could constrain Chancellor John Healey’s fiscal flexibility. Analysts estimate that higher yields may reduce the chancellor’s budgetary headroom by up to half compared with forecasts made in March.
Chancellor Healey acknowledged the stronger GDP numbers while emphasizing ongoing challenges, stating that the economy demonstrates “welcome resilience, despite serious global uncertainty.” On Monday, Healey also reiterated his commitment to deficit reduction, aiming to contain borrowing and inflation pressures.
The data helped ease gilt market volatility, with the 10-year yield slipping slightly to 5.35 percent following recent rises sparked by concerns over climbing oil and gas prices. The pound remained stable against the US dollar at $1.352 after the report’s release.
The Bank of England (BoE) is closely monitoring these developments as it approaches its next monetary policy decision. Governor Andrew Bailey recently highlighted “upside risks” to inflation due to rising energy costs. While the central bank is expected to maintain its current interest rate of 3.75 percent at its upcoming meeting, economists warn that the data could support further increases later in the year. Felix Feather, an economist at Aberdeen Asset Management, suggested the stronger growth indicates room for rate hikes without severely damaging economic activity.
Over the three months to July, the UK economy expanded by 0.4 percent, matching growth from the previous quarter but below the 0.6 percent increase recorded in the first quarter of 2026. Despite the gains, some consumer-facing services, such as retail and hospitality, experienced declines in output during July, likely impacted by higher energy prices and inflationary pressures.
Economists noted that investment in AI-related technologies could become an important driver of productivity and economic expansion at a time when traditional sectors remain subdued. Martin Beck, chief economist at WPI Strategy, described the IT sector’s contribution as “exactly the kind of productivity-enhancing spending the UK needs more of,” highlighting its potential to support sustainable growth.
With the Bank of England reviewing its policy stance and the government preparing for the October Budget, these figures provide a mixed picture of resilience and vulnerability in the UK economy amid ongoing global uncertainties.