UK economy grew by 0.4% in July

Latest figures from the Office for National Statistics (ONS) have shown that the UK economy grew in July, despite the impact of the Iran war. The data showed a 0.4 per cent increase in gross domestic product, compared with 0.3 per cent in June. The warm weather and World Cup were cited by some businesses as reasons for an uptick in turnover, according to the ONS.

In the three months to July, GDP grew by 0.4 per cent, led by the services sector. The data beats expectations for a contraction.

The growth was despite production and construction both contracting by 0.5%. Services remain the engine of growth, expanding 0.6% over the three months to July, while AI-related activity is providing an additional lift.

ONS Director of Economic Statistics Liz McKeown said “Growth remained relatively robust in the latest three months, as ongoing strength in the services sector was only partially offset by falls in both production and construction.

“Within services, computer programming was the largest contributor, continuing the strong growth seen throughout the year, with evidence that businesses involved with AI and related technologies helped to boost this sector.

“Continuing recent trends, research and development and rental and leasing also helped drive growth, while wholesaling saw a notable fall.

“Looking at the latest month, services also drove growth in July, with computer programming again making the largest contribution. 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.”

Anna Leach, Chief Economist at the Institute of Directors, said “July’s GDP data continue this year’s pattern of resilient growth, with particularly strength in computer programming, where the ONS points to activity related to AI and cloud computing. However, while July’s data are encouraging, the challenge now is whether that resilience can withstand a much tougher autumn. As the Iran conflict intensifies, oil is back above $100 a barrel, gas prices are at their highest since late 2022, and financial conditions have tightened markedly. These developments will raise inflation, squeeze household incomes and business margins, and weigh on spending and growth.

“As businesses and households brace for a difficult winter, the government risks adding to the very cost pressures it says it wants to relieve. On Monday, the Chancellor said he wanted to ‘draw the line’ under rising business costs..”

Mike Randall, CEO of Simply Asset Finance, said “A rise in GDP is encouraging, but is a sign that businesses are still operating in an environment that makes it difficult to invest and expand with confidence.

“The ensuing months will now be the real test of whether policy changes actually translate into better conditions for businesses, through less red tape, stronger financial incentives and a more supportive trading environment. Recent commitments from the Chancellor and Business Secretary to cut business admin may help, but won’t shift the dial on their own.

“Two years on from Labour’s initial Small Business Plan, this doesn’t mean more empty promises – but giving small businesses the confidence to invest and scale.”

Neil Rudge, Chief Banking Officer at Shawbrook, said “Businesses demonstrated resilience in July, with GDP increasing by 0.4% despite continued economic pressures and global uncertainty. The warm weather and World Cup activity may also have provided some support to consumer spending during the month.

“The Chancellor’s recent focus on growth and backing British business was welcome, and attention will now turn to the upcoming Budget for further detail on the practical measures that will support firms. As businesses plan for 2027, exploring funding options proactively can help them manage near-term pressures and unlock new opportunities.”