UK economy beats forecasts with 0.4% growth in July
Newsflash: The last month of Sir Keir Starmer’s premiership ended with stronger than forecast growth.
New data from the Office for National Statistics shows that the UK economy expanded by 0.4% in July alone, smashing forecasts that the economy would stagnate during the month.
That follows growth of 0.3% in June 2026 and no growth in May 2026.
The ONS says the growth in July was because of rises of 0.4% in services, of 0.2% in production and of 0.1% in construction.
More to follow…
Key events
Calm returns to bond markets
Another a week of turbulence, UK government bonds are recovering a little this morning.
With prices rising, the yield (or interest rate) on UK sovereign debt is dipping slightly.
The yield on 10-year UK bonds is down 2 basis points (0.02 of a percentage point) to 5.351%, away from the 19-year high hit yesterday.
30-year bond yields are dow 2bps too, to 5.91%, having hit their highest since 1998 yesterday.
Bond yields are very sensitive to moves in the oil price this week – crude prices are still down around 2% today, after surging yesterday to their highest since mid-May.
The Bank of England will probably leave interest rates on hold at its meeting next Thursday, predicts Susannah Streeter, chief investment strategist at Wealth Club:
For the Bank of England, today’s stronger-than-expected GDP figure makes an interest rate increase this year a touch more likely. Nevertheless, given the volatile times decision-makers are meeting in, it’s still likely they will once again press the pause button next week and await more data. The MPC held Bank Rate at 3.75% in July, with policymakers split 6-3, with three members voting for a hike.
The big worry is that higher energy costs will be passed on as higher prices by businesses and consumers, but it’s likely that the committee will want to see more evidence of that before triggering rate hikes. Given the turmoil in energy and bond markets, however, there is an expectation that we could see three to even four rate hikes over the next year. However, if the economy slows and consumers turn more cautious, that reticence may do some of the inflation-busting work for the bank.”
Healey: UK showing ‘welcome resilience’
Chancellor John Healey has welcomed today’s GDP report, saying:
“Britain’s economy is demonstrating a welcome resilience, despite serious global uncertainty.”
Berenberg: GDP report adds to risk of rate rise before Christmas
Berenberg economist Andrew Wishard also believes that July’s solid GDP report could encourage the Bank of England to raise interest rates before Christmas.
He says the 0.4% growth recorded in July hints that the current bank rate of 3.75% may not be as restrictive as he and some BoE rate setters thought.
Wishard explains:
Rolling quarterly growth came in at 0.4% in May-July compared to the previous three months, in line with Q2’s expansion.
Evidence that economy could cope with a solitary 25bp interest rate hike adds to the risk that the BoE will deliver one in November or December. However, as the central bank struggles to trust the official GDP data, broader evidence of solid growth would need to follow this strong outturn to convince it.
UK economy grows at fastest pace since February 2025
Reuters has spotted that Britain’s economy grew at the fastest annual pace in 18 months in July.
British GDP in July was 1.6% higher than a year earlier, the fastest annual rate since February 2025, they point out.
Markets expect four UK interest rate rises by July 2027
The sight of the UK growing faster than expected could spur the Bank of England to raise interest rates before Christmas.
Angeline Ong, senior technical analyst at brokerage IG, says today’s forecast-beating UK GDP report will boost rate hike expectations:
The upside surprise hands ammunition to BoE hawks pushing for a Q4 rate hike, even as gilt yields already sit at multi-decade highs on Middle East shipping attacks and firm US data.
After this week’s surge in the oil price, which drove bond yields higher, investors have already hiked their expectations for UK interest rate rises.
One rate rise by November is now priced in, with the money markets now anticipating four quarter-point hikes by July 2027, which would lift Bank rate to 4.75%, from 3.75% today.
At the start of this week, the markets were pricing in three rate rises by July 2027.
These expectations jumped yesterday, when the European Central Bank raised eurozone interest rates to 2.5% and warned that the risk of higher inflation over the next year has risen.
UK construction had a subdued July, today’s GDP report shows, but at least it returned to growth!
Monthly construction output is estimated to have grown by 0.1% in July, after a fall of 0.1% in June, and a 0.8% tumble in May.
Growth in July came solely from an increase in repair and maintenance, while new work contracted again.
UK manufacturing also had a decent July, with growth of 0.9% in the month.
That helped to lift production output (a wider measure) by 0.2% in July.
Water supply; sewerage, waste management and remediation activities grew by 2.0%, but there was a 4.4% fall in mining and quarrying, while electricity, gas steam and air conditioning supply dropped by 1.5% compared with June.
Digging into today’s GDP report a little, we can see that the UK services sector had a decent July, with growth in 11 of its 14 subsectors.
According to the ONS, the fastest growth was recorded in:
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professional, scientific and technical activities (up 2.1%), driven by growths in scientific research and development (up 7.0%), legal activities (up 3.1%), and advertising and market research (up 3.4%)
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information and communication (up 2.5%), which was mainly driven by a growth of 4.4% in computer programming, consultancy and related activities
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administrative and support service activities (up 1.3%), driven by growths of 6.1% in rental and leasing activities, and of 2.8% in services to buildings and landscape activities
Moody’s: Downside risks to UK economy remain high
There’s a danger that the UK economy slows later this year, points out Andrew Hunter, senior economist at Moody’s Analytics:
The 0.4% rise in U.K. GDP in the second quarter was slightly stronger than we expected and suggests the economy has remained resilient to the surge in energy prices.
Adding to the positive news, growth was driven by solid gains in household consumption and business investment, and included a healthy 0.3% monthly rise in output in June, suggesting momentum was sustained as the quarter progressed.
That said, it is worth remembering the repeated pattern in recent years of strong growth in the first half of the year being followed by a sharp slowdown in the second, and the downside risks—ranging from the U.S.-Iran conflict to pressures on the U.K.’s fragile public finances—remain high. Overall, we continue to forecast more modest growth over the rest of 2026. ”
KPMG: GDP rise masks weaker picture for households
Although the UK economy recorded decent growth in July, that doesn’t take the economic pressure off UK households.
Yael Selfin, chief economist at KPMG, cautions:
“A strong July provides a robust start to the third quarter, although weakness in consumer-facing sectors points to softer growth.
“Despite strong activity in July, the headline growth figure masks a weaker picture for households. Consumer-facing services contracted in July, as retail and hospitality activity fell following earlier increases in activity in the summer. Higher energy and fuel prices are likely to place further pressure on household budgets, while elevated mortgage rates will continue to weigh on housing activity and wider consumer spending.
UK growth: What the economists say
Economists are reacting favourably to today’s forecast-beating UK GDP data, showing the economy grew by 0.4% in July.
Paul Dales, chief UK economist at Capital Economics, is hopeful that AI could prove to be a longer-lasted support to real activity, saying:
The strong 0.4% m/m rise in real GDP in July (consensus and CE forecasts both 0.0%) suggests that the resilience of the economy in the first half of the year continued into the second half. But higher energy prices and borrowing costs will soon take a bigger toll on real activity, especially if this week’s big leaps are sustained.
Ben Jones, CBI senior lead economist, says Britain’s economy has been more resilient to the Iran war than expected:
“Stronger-than-expected growth in July suggests that the economy carried some of its first-half momentum into Q3.
“But although the economy has proved more resilient to the fallout from the Middle East conflict than initially seemed likely, the second half of the year looks a bit more challenging. Higher household energy bills are beginning to bite, while volatile energy markets and a global bond-market sell-off are adding to uncertainty and pushing up borrowing costs.
Richard Carter, head of fixed interest research at wealth managers Quilter Cheviot, warns that future growth will be ‘hard to come by’:
“Having bathed in sunshine for the vast majority of the month, and England experiencing a run to the World Cup semi-finals, the UK economy bucked expectations with solid growth of 0.4% for July. Growth was experienced in all three sectors, with services continuing to do much of the heavy lifting, although this masks a somewhat more concerning three-month picture for production and construction.
“The concern was that the UK was likely to experience another year when the economy runs out of steam when it comes to growth. After a better than expected first half last year, the economy spluttered to a halt in the latter half. But tentative signals are that things may be different his time around, despite the geopolitical situation showing no sign of abating. Growth is going to be hard to come by so this may not last, especially as activity is likely to stall ahead of the Budget. Indeed, there appears little consistency in the growth experienced by the UK right now, with today’s decent rise coming off the back of a contraction in April (-0.1%), no growth in May (0.0%) and a modest return to growth in June (0.3%).
AI boosted growth, with heatwave and football also a factor
England’s sensational run to the third-fourth playoff in the Men’s football world cup, and the heatwave, both affected the UK economy in July, the ONS says.
But computer programming was a major factor behind July’s growth, as the AI boom pushed up activity.
Here’s ONS director of economic statistics Liz McKeown explaining why the economy grew by 0.4% in July:
“Growth remained relatively robust in the latest three months, as ongoing strength in the services sector was only partially offset by falls in both production and construction.
“Within services, computer programming was the largest contributor, continuing the strong growth seen throughout the year, with evidence that businesses involved with AI and related technologies helped to boost this sector.
“Continuing recent trends, research and development and rental and leasing also helped drive growth, while wholesaling saw a notable fall.
“Looking at the latest month, services also drove growth in July, with computer programming again making the largest contribution. Separately, as in June, some businesses reported that the warm weather and FIFA World Cup had affected their activity, although effects differed across industries, benefitting some businesses while creating challenges for others.”
On an annual basis, real UK GDP is estimated to have grown by 1.3% in the three months to July 2026 compared with the same three months a year ago, the ONS reports.
That’s relatively slow by historic standards, but consistent with the UK’s weak growth over the last few years.
Compared to the same month a year ago, GDP is estimated to be 1.6% higher in July 2026.
Chart: UK GDP kept rising in July
UK economy beats forecasts with 0.4% growth in July
Newsflash: The last month of Sir Keir Starmer’s premiership ended with stronger than forecast growth.
New data from the Office for National Statistics shows that the UK economy expanded by 0.4% in July alone, smashing forecasts that the economy would stagnate during the month.
That follows growth of 0.3% in June 2026 and no growth in May 2026.
The ONS says the growth in July was because of rises of 0.4% in services, of 0.2% in production and of 0.1% in construction.
More to follow…
Oil’s dipping this morning, with Brent crude down 2.1% to $105.32 a barrel.
That follows news that Gulf foreign ministers plan to meet their Iranian counterpart in a push by Oman and Iran for a deal to temporarily manage shipping through the Strait of Hormuz….
Introduction: It’s GDP Day
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
We’re about to learn how the UK economy fared in July, during the summer heatwave.
July’s GDP report is expected at 7am. And economists are not optimistic there was much growth during the month – the concensus forecast is that GDP will be unchanged compared to June,
Over the last three months, that would slow growth to 0.3%, down from 0.4% in April-June, highighting the economic challenges facing chancellor John Healey.
A poor GDP report could add to jitters in the markets, where government bonds suffered another sell-off yesterday.
This sell-off pushed the yield, or interest rate, on 10-year UK government bonds to over 5.37% – the highest cost of borrowing since 2007.
The agenda
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7am BST: UK GDP report for July
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7am BST: UK trade report for July
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1.30pm BST: US CPI inflation report
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3pm BST: University of Michigan’s US consumer confidence report
