UK economy grows 0.4% in July, defying forecasts before the Bank of England meets

The UK economy expanded by 0.4% in July, according to official figures, where analysts had predicted no growth^1,2. Monthly GDP rose 0.4%, above a consensus forecast of flat growth⁸. The Office for National Statistics estimate for July confirmed the same figure⁶, and Continuum Economics noted the outcome ran contrary to expectations on a month-on-month basis³.

The Wall Street Journal described growth jumping again after a strong start to the year, with activity continuing to perform strongly despite higher energy prices⁹. The UK figure beat forecasts and the trade deficit narrowed⁴. The BBC attributed part of the surprise to the AI boom^2,10.

Why it matters to investors

The surprise lands on a rate decision. The Bank of England meets next week to discuss interest rates, and economists widely expect rates to be held, though some have predicted an increase¹⁰. Growth that arrives stronger than forecast while an energy shock is still feeding through gives the hawkish side of that argument more to work with.

It also lands on a fiscal event. The Guardian noted the unexpected rise comes as borrowing costs and inflation risks mount ahead of Healey’s first budget¹. Stronger activity improves the arithmetic a chancellor faces, but higher borrowing costs work the other way, and the gilt market has been setting the terms of that trade rather than the growth data.

NIESR raised its view on the quarter, forecasting growth of 0.7 per cent in the third quarter, an upgrade on its previous estimate⁷. Against that, Continuum expects growth to slow from here³, and the Institute of Directors paired better-than-expected growth and an uptick in directors’ optimism with a warning about global instability and domestic policy uncertainty⁶.

What to watch

The immediate test is next week’s rate decision and whether the split among economists narrows toward a hold or toward an increase¹⁰. A single monthly print rarely decides a vote, but a print that beats a flat consensus while energy costs are rising removes one argument for waiting^8,9.

Beyond that, the question is durability. A consensus of economists surveyed by the Wall Street Journal had looked for annual growth of 1.1%⁸, and the July figure sits above the run rate that implies. Whether the AI-related activity the BBC identifies is a level shift or a one-month contribution will determine how much of the upgrade survives^2,3.