UK gross domestic product grew by 0.4% month on month in July, beating forecasts. Andrew Wishart, senior UK economist at Berenberg, said the economy was "outstripping all forecasts substantially", against a consensus estimate of no growth and his own house forecast of just 0.1%.
Annual GDP growth accelerated to 1.6% year-on-year in July, up from 1.1% the previous month and its fastest pace since early 2025, according to the Office for National Statistics. Wishart said the breakdown of the figures "hints at an AI boost", with information and communication services up 8.1% year on year and professional, scientific and technical activities up 3.5%. Manufacturing rose 2.6% year on year, while construction fell 2.5% as the sector continued to struggle with higher borrowing costs.
The reading was stronger than most economists had expected, according to Danni Hewson, head of financial analysis at AJ Bell.
"Relatively robust is a fair assessment of how the UK economy performed in July, especially as most economists had thought growth would wilt in the scorching summer heat," she said.
"The dominant service sector helped power the economic engine, with those huge sums of cash being spent on AI finally showing up in official figures; computer programming was the largest contributor to growth in the sector."
Richard Carter, head of fixed interest research at Quilter Cheviot, said the strength of the figures should be weighed against a harder backdrop for investors heading into the autumn.
"Having bathed in sunshine for the vast majority of the month, and England experiencing a run to the World Cup semi-finals, the UK economy bucked expectations with solid growth of 0.4% for July," he said.
"With the energy price cap surging by 13% in July and oil prices continuing to climb higher, inflation concerns are once again being sparked," he said. The Budget at the end of October is a further focal point for markets, with the chancellor under pressure to address the government's borrowing position.
For investors, the next question is what the Bank of England does next. Felix Feather, economist at Aberdeen, said the data would reassure policymakers that current rates are not holding back growth.
"These figures will go some way to reassuring Bank of England policymakers that the current level of rates is not meaningfully restricting growth, which in turn suggests that rates could be moved higher without causing undue economic scarring," he said.
"We therefore expect the Bank to move to contain high inflation with a 25-basis-point hike in November after holding next week."