Increased use of AI helped the UK economy grow by 0.4 per cent in July, official figures show, in an unexpected boost for Andy Burnham.
The Office for National Statistics (ONS) released the latest gross domestic product (GDP) data, which was up from a 0.3 per cent growth rate in June.
It marks a surprise uplift after economists were expecting the economy to show zero growth for the month.
The ONS said the services sector drove growth in the three months to July, with a 0.6 per cent increase across the quarter, and computer programming making the largest contribution.
Artificial intelligence (AI) and related technology has helped to boost the sector over the past three months, according to the ONS.
ONS director of economics statistics Liz McKeown said: “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.”
It comes after Chancellor John Healey insisted that there was an “optimistic story” about the UK economy that was “turning a corner”.
There will, however, remain some questions over the production sector which contracted by 0.5 per cent in the three months to July, though manufacturing rose across the same period by the same amount with the largest contributing areas being manufacturing of computer, electronic and optical products, along with manufacture of machinery and equipment.
Richard Carter, head of fixed interest research at Quilter Cheviot, noted the surprise of the overall rise among analysts - and suggested it offered hope that 2025 would not be repeated, where growth in the first half of the year gave way to a listless second half.
“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 per cent 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,” he said.
“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.”
The Budget, set for mid-October, remains a central point for where the economy heads next. Last year, delays and rumour led to businesses and consumers alike postponing decisions and being cautious over spending, leading in no small part to the lack of growth.
The British Chambers of Commerce (BCC) urged the government to seize the opportunity next month to back businesses. “Growth of 0.4 per cent in the three months to July shows a more resilient economy than expected in the summer months,” said Stuart Morrison, BCC research manager.
“While today’s headline growth data is welcome news, the warning lights of cost pressures and global uncertainty are still flashing for many of the businesses we represent. Our Budget submission is clear about the immediate steps we’re recommending to help all businesses across the UK. We need to see a cut in employer NICs for all under 25s, cost relief on energy bills and business rates, and a fully resourced export support system.
“The Chancellor is facing some difficult choices in the coming weeks as he prepares plans to further kickstart the economy. Our message is simple, we’re calling on him to ‘Back Business, Cut Costs and Deliver Growth.”
Transport secretary Heidi Alexander said the growth was “good news”, but said the government will not be “complacent”.
“It is good news that the economy grew in July, and let's be honest, it has been against a very difficult and very challenging international backdrop,” she said.
“We must remember, though, that a lot of countries are experiencing difficult times at the moment. We have the fastest-growing economy in the G7 in the first half of this year.”
She added: “So we're not going to be in any way complacent about this, we do need to work with local leaders to drive that growth in every postcode.”
The latest economic figures come just a week ahead of the Bank of England’s next meet to vote on interest rates. While two-year bond yields have surged upwards in recent weeks, indicating an expectation of future rate rises, there remains hesitation over whether the BoE will vote for one this time around.
With unemployment still high and inflation fears ongoing, a weak economy would make the BoE’s juggling act of forces pushing in different directions even more difficult - but Suren Thiru, ICAEW chief economist, expects another hold at 3.75 per cent before the Budget.
“The UK economy confounded expectations in July, seemingly shrugging off a steep rise in energy bills to deliver stronger-than-expected growth,” he said.
“If the UK economy does start to falter, the Chancellor could be left with a Budget headache, as more muted growth and surging borrowing costs erode his fiscal headroom, raising the prospect of further tax rises.
“While these figures may strengthen the hawkish mood among rate-setters, a September rate rise still looks unlikely as most policymakers remain hopeful that a sluggish economy will ultimately help bring inflation under control, despite escalating US-Iran tensions.”
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