Technology-led services lifted output, but weaker retail activity and industrial pressures complicate the recovery The UK economy grew by 0.4% in July, sup…
Technology-led services lifted output, but weaker retail activity and industrial pressures complicate the recovery
The UK economy grew by 0.4% in July, supported by technology, professional services and manufacturing. Yet the stronger national figure did not translate into a broad consumer recovery: retail activity declined, production and construction remained weaker over the latest three-month period, and high energy costs continued to weigh on businesses and households.
The latest Office for National Statistics estimate, published on Friday, showed that real gross domestic product increased by 0.4% from June. That followed monthly growth of 0.3% in June and no growth in May.
Output was 1.6% higher than in July 2025. Measured across the three months to July, a less volatile comparison than the monthly figure, the economy also expanded by 0.4%.
The result gives the UK a relatively firm start to the third quarter. However, the composition of the expansion shows an economy advancing at different speeds.
Technology and professional services lead
Services, which account for most UK economic activity, grew by 0.4% in July. Administrative and support services rose by 3.7%, while information and communication output increased by 2.4%.
Computer programming, consultancy and related activities expanded by 3.5% during the month. The industry alone contributed an estimated 0.12 percentage points to national GDP growth.
The ONS found that many of the businesses reporting the largest turnover increases in computer programming and information services were involved in artificial intelligence or cloud computing. It nevertheless cautioned that its data could not isolate or quantify the exact contribution made by those technologies.
Over the broader three-month period, professional, scientific and technical activities grew by 2.1%. Scientific research and development increased by 7%, while computer programming and related activities expanded by 4.4%.
The figures provide evidence of genuine strength in parts of Britain’s knowledge economy. They do not, however, establish that an “AI boom” alone is driving national growth. The category also includes conventional software, consultancy, data infrastructure and other digital services.
Consumer activity tells a weaker story
Consumer-facing services fell by 0.4% in July. Retail trade declined by 0.5%, reversing some of its gains from May and June, while the wider wholesale and retail sector was the largest negative contributor to both services and overall GDP.
Accommodation output rose by 2.6%, but that was not sufficient to offset weakness elsewhere. The ONS also recorded mixed effects from warm weather and the football World Cup, with some pubs, advertisers and drinks producers reporting higher turnover while some restaurants experienced weaker activity.
This distinction matters because GDP measures the value of production, not how evenly economic gains are distributed or whether household living standards are improving. A rise concentrated in business services can coexist with pressure on family budgets, subdued discretionary spending and difficult trading conditions on local high streets.
Those pressures form part of a wider European inflation and energy squeeze. The ONS reported that 59% of surveyed UK businesses expressed some concern about energy prices in late August, while 63% were concerned about fuel costs.
A mixed picture beyond services
Production output rose by 0.2% in July, helped by a 0.9% increase in manufacturing. Computer, electronic and optical products recorded particularly strong monthly growth, alongside pharmaceutical manufacturing.
Construction edged up by 0.1%, driven by repair and maintenance work, while new construction fell by 0.4%.
The three-month figures were less encouraging. Services grew by 0.6%, but production and construction each contracted by 0.5%. Public housing construction fell sharply over that period, while electricity supply, mining and parts of heavy manufacturing also weakened.
Early indicators for August suggest consumer demand may have softened again. Retail footfall decreased, particularly in town and city centres, while the estimated quantity of automotive fuel purchased per transaction grew more slowly as prices rose.
A harder interest-rate calculation
The expansion also complicates the outlook for monetary policy. The Bank of England’s July assessment kept Bank Rate at 3.75% and warned that inflation was likely to rise as higher global energy costs reached household bills, transport and supply chains.
The Bank projected that consumer-price inflation could average 3.2% in the final quarter of 2026, remaining above its 2% target. At the same time, it described underlying demand as subdued and expected weak household income growth and restrictive financial conditions to restrain the economy.
July’s GDP number reduces immediate fears of stagnation, but one monthly estimate is unlikely to settle that debate. Stronger activity can make an interest-rate reduction less urgent, while persistent energy-led inflation may increase pressure to keep borrowing costs high. Conversely, weak consumer demand and spare capacity argue against excessive tightening.
The figures are preliminary and will be revised as more information becomes available. For now, they point to a resilient but uneven economy: expanding digital and professional sectors, some improvement in manufacturing, and households still navigating elevated prices and restrained spending power.
The central question is therefore not only whether Britain can generate growth, but whether that growth can spread beyond a narrow group of industries into wages, investment, housing and everyday commerce. July offered a stronger headline. Evidence of a broad recovery remains less conclusive.
