UK economy grows 0.4% in July as services and AI activity drive surprise uplift

The UK economy grew by a stronger-than-expected 0.4% in July, with services and computer programming activity helping to drive growth as businesses continued to demonstrate resilience amid economic and geopolitical uncertainty.

Latest figures from the Office for National Statistics (ONS) show that monthly gross domestic product (GDP) increased by 0.4% in July 2026, following growth of 0.3% in June and no growth in May.

The performance was stronger than economists had expected and provides an encouraging start to the third quarter, although industry figures cautioned that businesses continue to face significant barriers to investment and growth.

Across the three months to July, the economy expanded by 0.4% compared with the three months to April. This marked the eighth consecutive period of three-month-on-three-month growth and followed increases of 0.4% in the three months to June and 0.6% in the three months to May.

The services sector remained the principal engine of the economy, growing by 0.6% over the three months to July. By contrast, both production and construction output fell by 0.5%.

Professional, scientific and technical activities made the largest positive contribution to services growth over the period, while businesses involved in computer programming also performed strongly.

The figures add to indications that investment and activity surrounding artificial intelligence and related technologies are beginning to have a measurable impact on parts of the UK economy.

ONS Director of Economic Statistics Liz McKeown said businesses involved in computer programming had benefited from the AI boom over recent months, with computer programming again making the largest contribution to services growth in July.

Some businesses also reported an impact from the men’s football World Cup and unusually warm weather, although the effects varied considerably between industries.

On a monthly basis, all three main sectors expanded in July. Services output increased by 0.4%, production grew by 0.2% and construction edged 0.1% higher.

The latest figures follow an estimated 0.4% increase in UK GDP during the second quarter of 2026, after growth of 0.6% in the first quarter.

Despite the stronger-than-expected headline figure, Mike Randall, CEO of Simply Asset Finance, said the outlook for businesses remains challenging.

“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, similarly pointed to the resilience demonstrated by UK businesses while highlighting the importance of the forthcoming Budget.

“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.”

The July figures offer a more positive signal for the UK economy after concerns that momentum could weaken during the second half of the year.

However, the divergence between sectors remains significant. While services continue to underpin growth, the 0.5% falls in both production and construction across the latest three-month period point to more difficult conditions elsewhere in the economy.

For lenders and the wider business finance market, the coming months will therefore provide an important indication of whether the economy’s recent resilience can translate into stronger business confidence, investment and demand for finance.