UK economy unexpectedly grows in July – was AI responsible?

The UK economy continues to surprise, showing unexpected growth in July and signs that national productivity is beginning to improve.

Gross Domestic Product (GDP) rose by an estimated 0.4% in the month to July, up from 0.3% in June and no growth in May, according to the latest data from the Office for National Statistics (ONS).

The figures offer new chancellor John Healey a boost ahead of the Autumn Budget in October.

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In his first major speech at a manufacturing plant in Coventry on Monday (7 September), Healey said targeting economic growth was a key priority.

Sanjay Raja, chief UK economist at Deutsche Bank, said the July GDP figures bucked expectations and “surprised in a good way”.

"The UK growth story is becoming harder to ignore,” said Raja. "Households and businesses are still spending – despite the unfolding energy shock impacting disposable incomes."

Raja pointed to recent jobs data from the ONS which showed the number of payrolled employees in the UK fell by 0.3% between July 2025 and July 2026 – equivalent to 94,000 fewer workers.

With GDP still showing growth, he suggested this meant output from workers was improving.

“If you believe the administrative HMRC jobs data, the UK is churning out growth with fewer employees over the last year and a bit. Put differently, productivity growth is finally starting to come through.”

Was AI behind the positive GDP figures?

The positive GDP reading for July was partly thanks to rises of 0.4% in the services sector, 0.2% in production and 0.1% in construction, the ONS said.

Liz McKeown, director of economic statistics at the ONS, said warmer weather and the FIFA football World Cup drove activity.

Today’s ONS data showed GDP in the three months to July rose by 0.4%, following an increase of 0.4% in the three months to June and growth of 0.6% in the three months to May.

The ONS said the growth of 0.4% between May and July was due to a rise of 0.6% across the services sector and despite contractions of 0.5% in the production and construction sectors.

Commenting on the three-monthly data, McKeown said: “Within services, computer programming was the largest contributor, continuing strong growth seen throughout the year, with evidence that businesses involved with artificial intelligence (AI) and related technologies helped to boost this sector.”

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What next for economic growth?

The latest projections by the International Monetary Fund (IMF) predict UK GDP will grow by 1% in 2026 and 1.3% in 2027.

The IMF said global economic activity was being majorly impacted by the conflict in the Middle East and advances in AI tools.

Rob Wood, chief UK economist at research firm Pantheon Macroeconomics, said domestic uncertainty around what could be announced in the Autumn Budget remained a “short-term risk” to growth.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, added: “July’s strong showing is likely to mark the high-water mark for growth in Q3, with higher energy bills and pre-Budget tax uncertainty expected to weigh on household spending and economic activity through August and September.

“If the UK economy does start to falter, the chancellor could be left with a Budget headache, as more muted growth and surging borrowing costs erode his fiscal headroom, raising the prospect of further tax rises.”

Thiru added that a September interest rate rise looks “unlikely” as policymakers on the Monetary Policy Committee will “remain hopeful that a sluggish economy will ultimately help bring inflation under control, despite escalating US-Iran tensions.”