UK economy grew 0.4% in July, beating forecasts as AI boosts services

The UK economy expanded by 0.4% in July, up from 0.3% in June and defying expectations of zero growth, per the Office for National Statistics. The services sector, particularly AI-related computer programming, drove the increase, giving Chancellor John Healey some breathing room ahead of his autumn Budget.

Bottom line — The 0.4% surprise growth gives Healey fiscal headroom before October's Budget, but KPMG warns of mounting household pressures.

Go deeper (7)

• The services sector output rose 4% in July, with computer programming making the largest contribution, the ONS said.
• AI and cloud computing businesses reported the largest turnover over the past three months, according to the ONS evidence.
• Production output grew 0.2% and construction 0.1%, helped by manufacturing and housing repairs, the ONS noted.
• ONS director Liz McKeown said warm weather and the FIFA World Cup had mixed effects across industries in both June and July.
• Yael Selfin, chief economist at KPMG, argued the headline masks weaker household budgets hit by energy and mortgage costs.
• Suren Thiru of the Institute of Chartered Accountants said slower growth and rising borrowing costs could force tax rises in the Budget.
• Emeritus professor Joe Nellis of MHA urged Healey to avoid business tax hikes that would undermine the growth recovery.

Read the reporting