UK economy grows 0.4% in July as services and AI-related firms drive surprise rise

The UK economy grew 0.4% in July, against forecasts for no change. The Office for National Statistics (ONS) reported the increase.

Services provided the main boost, particularly computer programming. The ONS said many IT businesses reporting the largest turnover gains appeared to be involved with artificial intelligence, although its precise contribution was difficult to measure.

The economy expanded 0.3% in June and was unchanged in May. In the three months to July, growth was 0.4% compared with the previous three-month period.

Services support July growth

ONS director of economic statistics Liz McKeown said businesses working with AI and related technologies had supported growth in May, June and July. She also said warm weather and the football World Cup affected industries differently, helping some businesses while creating difficulties for others.

Consumer-facing services weakened, with retail and hospitality activity falling after earlier increases during the summer. KPMG chief economist Yael Selfin said the headline figure concealed a weaker position for households.

Energy and rates threaten momentum

Economists expect growth to slow as energy prices and borrowing costs rise. A sharp increase in oil prices linked to the war in Iran has fed through into higher fuel and energy costs for households and businesses.

The Bank of England will discuss interest rates next week. Economists broadly expect rates to remain unchanged, although some have forecast an increase before the end of the year.

AI firms seek stronger support

Rob Arnold, co-founder of the nine-person AI company Ascendea, said AI allowed his firm to develop applications for other businesses “100 times quicker at a 50th of the cost”. He said the government should provide more funding and train companies to use the technology safely.

Arnold said some small UK AI firms had moved to the US or were considering doing so because of limited government support.

Chancellor John Healey called the economy resilient despite global uncertainty and said UK growth in the first half of the year was the fastest in the G7. Shadow chancellor Andrew Griffith urged the government not to celebrate, citing contractions in construction and production and rising unemployment.