UK economy unexpectedly grows 0.4% in July boosted by AI

The UK economy grew in July despite the fallout from the Iran war, in welcome news for John Healey ahead of next month’s budget.

Figures from the Office for National Statistics (ONS) showed a 0.4% increase in gross domestic product (GDP), compared with 0.3% growth in June.

City economists had forecast zero growth.

With conflict in the Middle East continuing to rattle the global economy, the news comes as the UK government’s borrowing costs have surged to the highest level in almost two decades.

Economists warn the rise in the global oil price- to well above $100 a barrel – is likely to stoke higher inflation worldwide.

Britain recorded the strongest growth in the G7 in the first half of 2026 despite the onset of the conflict.

Economists have warned the chancellor could be forced to increase taxes or cut spending at his first budget on 28 October in response to rising interest rates after the war in Iran triggered turmoil in global bond markets.