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Economists expected economic growth to come to a halt in July

The UK economy returned to growth in July, providing a boost after a challenging period for businesses and households.

GDP rose by 0.4 per cent during the month, according to the Office for National Statistics (ONS).

Economists had expected the economy to flatline in July, making the latest growth figures a stronger-than-expected boost.

The figures will come as welcome news to Chancellor John Healey who earlier this week insisted that the UK economy was "turning a corner", as he prepares to deliver his first autumn Budget statement next month.

Artificial intelligence (AI) and related technology has helped to boost the sector over the past three months, according to the ONS.

ONS director of economics statistics Liz McKeown said: "Separately, as in June, some businesses reported that the warm weather and FIFA World Cup had affected their activity, although effects differed across industries, benefitting some businesses while creating challenges for others."

The services sector drove the increase, growing by 0.6 per cent, while both production and construction output fell by 0.5 per cent.

On a monthly basis, GDP rose by 0.4 per cent in July, accelerating from growth of 0.3 per cent in June after the economy recorded no growth in May.

All three major sectors expanded during July, with services growing by 0.4 per cent, production by 0.2 per cent and construction by 0.1 per cent.

The improvement comes as conflict in the Middle East continues to put pressure on the global economy, with UK Government borrowing costs climbing to their highest level in almost two decades.

Oil prices have also surged above $100 a barrel, raising concerns that higher energy costs could push inflation up further around the world.

Despite these pressures, Britain recorded the strongest economic growth in the G7 during the first half of 2026, even as the conflict began to weigh on the global outlook.

The stronger-than-expected growth is unlikely to be enough to trigger an interest rate rise this month, according to economists.

Martin Beck, chief economist at WPI Strategy, said Britain's economy had "retained more momentum than many had feared," but "the question now is whether this strength can be sustained as the economy faces a more difficult backdrop."

He added: "The renewed rise in oil prices to above $100 a barrel is a significant headwind. If sustained, higher energy costs will lift inflation, squeeze household spending power and make the Bank of England’s job more difficult.

"The priority for government should be to reinforce that momentum rather than undermine it through higher taxes on investment or prolonged policy uncertainty."

Suren Thiru, ICAEW chief economist, said July's growth had "confounded expectations", helped by warm weather and a World Cup boost.

However, he warned the strong performance could be the "high-water mark for growth in Q3", with higher energy bills and pre-Budget uncertainty expected to weigh on the economy.

Mr Thiru added that weaker growth and rising borrowing costs could leave the Chancellor with a "Budget headache", potentially raising the prospect of further tax rises.

Despite the stronger GDP figures, he said "a September rate rise still looks unlikely".

Emeritus Professor Joe Nellis, head of economic research at MHA, said the latest figures offered "cause for optimism".

He said the economy had shown "resilience in recent months", but warned Chancellor Healey against significant business tax rises at the Autumn Budget that could "put the brakes on growth".

Mr Nellis added that Mr Healey faces an "increasingly difficult balancing act", with UK bond yields the highest in the G7 and weaker growth potentially putting further pressure on the public finances.

He said: "It is vital that the government converts a short-term boost into long-term, sustainable growth."