OddsFrontUK economy grows 0.4% in July as services defy forecasts
Unexpected expansion led by programming, consulting and administrative services gives the government a lift before its October budget, although expensive energy and borrowing remain risks.
A stronger month than expected
Britain's economy expanded by 0.4% in July, beating economists' expectation that output would be unchanged. The result followed 0.3% monthly growth in June and gave the government a stronger starting point before the chancellor presents his first budget on 28 October. The figures matter because the country is absorbing higher energy and borrowing costs generated partly by the continuing Middle East conflict.
Services supplied the momentum
Services output also rose by 0.4% and made the largest contribution to the monthly expansion. Administrative services, computer programming and consulting were particularly important. Businesses involved in artificial intelligence and cloud computing reported some of the largest turnover increases, indicating that investment in digital capacity is supporting activity while several traditional parts of the economy remain subdued.
Production increased by 0.2% in July. Higher manufacturing output outweighed contractions in mining and in electricity and gas supply. Looking across the less volatile three-month period, gross domestic product grew by 0.4% in the three months through July, matching the pace recorded in the three months through June. That measure suggests the headline result was not solely a one-month statistical jump.
The budget still faces a difficult backdrop
The improvement does not remove the government's fiscal constraints. Global oil prices above $100 a barrel threaten to push inflation higher, while rising bond yields increase the cost of financing public debt. Those pressures could narrow the chancellor's room to increase spending without tax rises. The labour market was already softening before the new GDP release, with payroll employment lower than a year earlier and vacancies near long-term lows.
The next test is whether the services-led expansion survives renewed energy inflation. Bank of England policymakers meet before the October budget, but the stronger GDP number alone is unlikely to determine their decision. Officials will also weigh wage growth, inflation expectations and the durability of the oil-price shock. Future revisions to the early GDP estimate may alter the precise figure, so the broader three-month trend remains the more reliable guide.