The UK economy expanded by 0.4% in July 2026, according to official data released by the Office for National Statistics (ONS). The growth figure exceeded consensus economist forecasts, which had broadly predicted a flat performance of 0.0% for the month.
The expansion marks the eighth consecutive three-month period of growth for the UK, with real GDP rising 0.4% in the three months to July. This resilience comes despite significant global volatility and the ongoing economic impact of the Iran war, which has contributed to rising energy costs and bond market fluctuations.
Tech and AI Drive Service Sector Gains
The services sector, the primary engine of the UK economy, grew by 0.4% in July. The ONS identified computer programming, consultancy, and administrative services as the key contributors to this month-on-month increase. Specifically, computer programming and consultancy surged by 3.5% during July.
The ONS noted that turnover in these high-tech sectors was significantly boosted by investment in artificial intelligence (AI) and cloud computing services. This tech-led growth helped offset broader domestic pressures, including rising energy costs, which had been expected to curb household discretionary spending.
While services led the recovery, other industrial sectors showed more modest gains. Production output rose by 0.2%, while construction output saw a slight increase of 0.1%.
Fiscal Pressure and the October Budget
Chancellor John Healey described the July figures as “welcome resilience” in the face of international uncertainty. However, the positive growth data has not fully insulated the UK from tightening financial conditions. The 10-year gilt yield reached 5.4% in September, its highest level since 2007, as markets react to global bond volatility and persistent inflation concerns linked to the conflict in the Middle East.
The stronger-than-expected GDP data provides a complex backdrop for Prime Minister Andy Burnham’s government as it prepares for its first major fiscal event. The upcoming Budget is scheduled for October 28, 2026, where the Treasury is expected to address the gap between robust service-sector performance and the ongoing challenges in the UK’s industrial and construction base.
Market analysts are now looking toward the Bank of England’s next interest rate decision. While the 0.4% growth suggests the economy is avoiding a downturn, the surge in AI-related service activity and the 5.4% gilt yields may influence the central bank’s assessment of inflationary pressures in the coming months.
