UK economy grows 0.4% in July 2026 as AI and services boost output

Services and computing drive monthly expansion

British gross domestic product grew by 0.4% in July 2026, according to data released by the Office for National Statistics. Economists surveyed by Reuters had forecast zero growth for the month following a 0.3% expansion in June. Compared to the previous year, economic output increased by 1.6%, marking the fastest annual growth rate since February 2025 and outpacing expectations of 1.2%. Output in the three months to July held steady at 0.4%, defying projections of a slowdown to 0.3%. The monthly improvement follows a contraction of 0.1% in April and zero growth in May.

The expansion was led by the services sector, which grew 0.4% month-on-month. Within services, computer programming, consultancy, and information technology activities generated the largest single contribution to growth, bolstered by corporate spending on artificial intelligence and cloud computing infrastructure. Consumer-facing businesses experienced mixed effects during the period. Warm weather and the FIFA World Cup supported hospitality venues, though retail footfall fluctuated.

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.

G7 performance and market reaction

Britain's economy grew by 1.0% across the first half of 2026, recording the fastest growth rate among the Group of Seven advanced economies. The performance positions full-year output to potentially exceed the Bank of England's projection of 1.1% growth, though economists noted that seasonal adjustment factors could lead to future revisions. In response to the data, sterling rose 0.1% against the US dollar to $1.352 and registered an equivalent gain against the euro, leaving the eurozone currency at 85.84 pence.

Deutsche Bank chief UK economist Sanjay Raja pointed to persistent domestic demand despite elevated consumer pressures.

The UK growth story is becoming harder to ignore. Households and businesses are still spending - despite the unfolding energy shock impacting disposable incomes.

Energy costs and monetary policy outlook

The economic expansion occurred despite mounting headwinds from the conflict between the United States and Iran. Brent crude oil prices rose to $110 a barrel, elevating corporate input expenses and pushing inflation projections toward 3.2% for later this year. Sovereign debt markets reacted with higher yields across government bonds. Britain's benchmark 10-year gilt yield climbed to 5.4% on Thursday, its highest level since 2007, while the 30-year yield reached nearly 6.0%, a peak not recorded since 1998.

The Bank of England is scheduled to convene next week, with financial institutions expecting the benchmark interest rate to remain at 3.75%. However, futures markets price an interest rate increase in November, alongside expectations of three further rate hikes by the middle of 2027. Bank of England Governor Andrew Bailey stated that recent economic readings had arrived slightly stronger than anticipated, while adding that market pricing incorporated a risk premium linked to global energy volatility.

Fiscal preparations ahead of the autumn budget

The GDP release precedes the government's upcoming fiscal statement, which Chancellor of the Exchequer John Healey will present on 28 October 2026. Healey stated earlier in the week that the national economy was turning a corner, while pledging strict adherence to spending constraints to reassure financial markets facing elevated borrowing rates.

Staying true to our values means being honest about the need to control public spending.

Richard Carter of Quilter Cheviot stated that market attention is turning toward the budget presentation, where the Treasury must navigate household assistance measures and potential revenue adjustments without disrupting economic growth.