UK economy unexpectedly grew by 0.4% in July

The UK economy unexpectedly grew by 0.4% in July following a boost from the services industry and businesses increasing the use of AI, official figures show.

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%, 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.

Its 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.

It comes amid a wider AI investment boom, with businesses increasingly spending on infrastructure and training to accelerate their use of the technology.

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, benefitting some businesses while creating challenges for others”.

Chancellor Healey said the UK economy was growing ‘despite serious global uncertainty’ (Betty Laura Zapata/PA)

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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.

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.