The UK economy recorded surprise growth in July as the AI spending boom helped deliver a boost, despite emerging signs of strain on households.
Gross domestic product (GDP) increased by 0.4% in July, following growth of 0.3% in June, according to the Office for National Statistics (ONS).
It marks a surprise uplift after economists were expecting the economy to show zero growth for the month.
The figures will come as welcome news to Chancellor John Healey who earlier this week insisted that the UK economy was “turning a corner”, as he prepares to deliver his first autumn Budget statement next month.
The ONS said the services sector drove growth in July, with output increasing by 4%.
The largest contribution to growth in the sector came computer programming, with artificial intelligence (AI) and related technologies helping to provide a boost, the ONS found.
Evidence showed that across computer programming, consultancy and IT activities, many of the businesses reporting the largest turnover in July were involved in activities related to AI and cloud computing.
The rapid adoption and expansion of AI has been showing up in UK surveys and business updates with spending on infrastructure and training accelerating across different sectors, providing a boost to sectors that can provide tech and support services.
Susannah Streeter, chief investment strategist at Wealth Club, said AI appeared to be providing a “bounce” for the UK economy, adding: “It’s a sign that the AI spending boom is starting to feed through into the wider economy, as businesses invest in the computing power, software and expertise needed to put the technology to work.”
GDP growth in July was also helped by a 0.2% increase in production output, driven by growths in manufacturing and water supply, including sewerage and waste management, the ONS said.
Construction output also increased by 0.1%, helped by housing repair and maintenance work.
Meanwhile, the impact from the heatwaves on spending in pubs and restaurants was down in July compared with June, which had been helped by record hot weather and the Fifa World Cup kicking off.
ONS director of economics statistics Liz McKeown said that “some businesses reported that the warm weather and Fifa World Cup had affected their activity, although effects differed across industries, benefiting some businesses while creating challenges for others”.
Mr Healey said: “Britain’s economy is demonstrating a welcome resilience, despite serious global uncertainty.”
He referred to the Iran war which he said “does have impacts here at home – from the cost of the weekly family shop to the cost of Government borrowing”.
Government long-term borrowing costs have risen to their highest levels in 28 years in recent weeks.
“We are shifting power to local communities to generate growth in more places and backing business to succeed with more investment, innovation and jobs,” Mr Healey said.
“This is the route to raising living standards and delivering good growth in every postcode.”
Yael Selfin, chief economist for KPMG, said: “Despite strong activity in July, the headline growth figure masks a weaker picture for households.”
She pointed to the consumer-facing services, like retail and hospitality, which marked falls in July following an earlier summer boost.
“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,” she said.
This could cause momentum to slow in August and September, she cautioned.
Matt Swannell, chief economic adviser to the Item Club, said that strength in the UK’s services industry was “narrowly focused on a handful of business-to-business sub-sectors” like administrative services and IT, while consumer-facing services fell back.
“Households’ spending power is being squeezed by rising energy bills, while tightening financial conditions weigh heavily on consumers’ and businesses’ spending decisions,” he said.
Suren Thiru, chief economist for the Institute of Chartered Accountants England and Wales (ICAEW), said Mr Healey could be left with a “Budget headache” if economic growth starts to dwindle, “as more muted growth and surging borrowing costs erode his fiscal headroom, raising the prospect of further tax rises”.
Mr Healey is set to deliver his autumn Budget for taxes and spending on October 28, at a time when household energy bills are expected to rise following the new Ofgem price cap taking effect.
Andrew Griffith, shadow chancellor for the Conservatives, said: “Nobody in this Labour Government should be high-fiving themselves.
“Our construction and production sectors are shrinking, unemployment is up under Labour, and we’ve got the highest Government borrowing rates in almost 30 years.”
Read MoreHeathrow sees passenger numbers fall in peak summer holidays month
UK economy unexpectedly grows 0.4% in boost for Burnham
Independent Scotland in EU would make Scots £3,000 a year richer, claims SNP
Polanski selected as Green candidate in battle with Labour for Starmer’s former seat
Watch live: MPs vote on assisted dying as Bill returns to parliament
