The UK economy expanded by 0.4% in July 2026, significantly outperforming market expectations of stagnation. According to data released by the Office for National Statistics (ONS), the growth follows a 0.3% increase in June, pushing annual GDP growth to 1.6%—the fastest year-on-year pace recorded since early 2025.
City economists and Reuters-polled analysts had predicted a 0.0% growth rate for July, citing concerns over high energy costs and global instability. The July figures indicate a surprising level of resilience, particularly as the economy absorbed a 13% increase in energy price caps and the persistent pressure of global oil prices remaining above $100 per barrel due to the ongoing Iran war.
AI and Services Drive Expansion
The dominant services sector, which accounts for approximately 80% of the UK economy, rose by 0.4% in July. The ONS identified computer programming and consultancy services as the primary engines of this growth. Within these sub-sectors, activities related to artificial intelligence and cloud computing were the largest contributors, providing what analysts are describing as a “high-tech shield” against broader economic headwinds.
Other sectors also showed modest gains. Production output increased by 0.2% during the month, while construction output edged up by 0.1%. Despite these monthly upticks, manufacturing and construction have maintained a softer profile in the three-month average leading up to July, reflecting the impact of high borrowing costs as the Bank of England’s key interest rate remains at 3.75%.
Fiscal Momentum Ahead of the October Budget
The stronger-than-expected July data provides a measure of momentum for the government. Chancellor John Healey is currently preparing for his first major fiscal event, with the Autumn Budget scheduled for October 28, 2026.
Chancellor Healey confirmed the resilience of the figures, noting that the economy is navigating significant fiscal pressures. The 0.4% expansion suggests that the UK’s burgeoning technology sector may be decoupling from traditional industrial dependencies, such as heavy manufacturing, which are more sensitive to energy price fluctuations. However, economists remain cautious regarding the sustainability of this growth rate if oil prices remain elevated and consumer spending is further dampened by the recent price cap hikes.
While the Bank of England is scheduled to meet soon to review monetary policy, the July growth beat complicates the outlook for potential rate cuts. The 1.6% annual acceleration suggests that underlying demand remains robust, even as the cost of living continues to be influenced by geopolitical volatility.
