The UK economy grew by a surprise 0.4% in July, defying forecasts of no growth, with the pick-up partly boosted by businesses investing in artificial intelligence, the Office for National Statistics (ONS) said.
Chancellor John Healey hailed the UK’s “welcome resilience” as the data was released. The Chancellor insisted during a keynote speech on Monday this week that the UK was “turning a corner”, with signs of optimism. The figures will come as a relief for Mr Healey ahead of next month’s Budget.
Services sector drives growth
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. It comes amid a wider AI investment boom, with businesses increasingly spending on infrastructure and training to accelerate their use of the technology.
Construction output also increased by 0.1%, helped by housing repair and maintenance work. The impact from 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.
Experts warn of slowdown
Experts warned the Chancellor against derailing the fragile recovery by announcing measures in the Budget that could hit growth, despite the state of the UK public finances. The Bank of England is all but certain to freeze interest rates next week, but the relatively decent growth figures could allow for a hike later this year to try to dampen inflation.
Yael Selfin, chief economist for KPMG, cautioned: “Despite strong activity in July, the headline growth figure masks a weaker picture for households.” She pointed to 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.
Budget headache warning
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 said: “Britain’s economy is demonstrating a welcome resilience, despite serious global uncertainty.” The 0.4% growth in gross domestic product - the value of everything the UK churns out - came on top of 0.3% in June.
