UK Economy Grows 0.4% in July, Beating Forecasts Despite Iran War Headwinds

Britain's economy expanded by 0.4% in July, comfortably outpacing expectations and extending the robust momentum recorded through the first half of the year, official figures showed on Friday.

Economists had expected gross domestic product to be flat on the month, following a 0.4% rise in June. On an annual basis, output was 1.6% higher — the quickest year-on-year pace since February 2025 and well above the 1.2% consensus forecast.

Growth over the three months to July also held at 0.4%, matching the reading for the three months to June, where analysts had anticipated a slowdown to 0.3%.

The Office for National Statistics attributed the performance to continued strength in services, which was only partly offset by declines in both production and construction. Liz McKeown, the ONS Director of Economic Statistics, said artificial intelligence appeared to be providing a lift to software development.

In the first half of 2026, Britain's economy grew by 1%, the fastest rate among the Group of Seven advanced economies, though some analysts caution that seasonal effects not yet fully adjusted for may be flattering the figures.

The data comes against a backdrop of global uncertainty stemming from the U.S.-Iran war. Like other European economies, Britain has so far absorbed less of a growth hit from the conflict than economists initially feared. However, the war pushed oil prices above $105 a barrel this week, feeding through to higher government borrowing costs.

The Bank of England forecast in July that the economy would grow 1.1% across 2026 as a whole. Earlier this week, Governor Andrew Bailey told a parliamentary committee that incoming economic data had been "a bit stronger" than he had anticipated. The central bank nonetheless expects inflation to climb to around 3.2% later this year.