“Despite strong activity in July, the headline growth figure masks a weaker picture for households. Consumer-facing services contracted in July, as retail and hospitality activity fell following earlier increases in activity in the summer. Higher energy and fuel prices are likely to place further pressure on household budgets, while elevated mortgage rates will continue to weigh on housing activity and wider consumer spending.
“Activity in sectors aligned with AI and technology investment bode well for the Chancellor’s ambition to raise UK growth momentum, while today’s GDP figures also provide a welcome boost for the Chancellor ahead of the Autumn Budget, highlighting the resilience of the UK economy despite a challenging global backdrop. However, while stronger growth should lend some support to the public finances, it is unlikely to materially expand the Chancellor’s room for manoeuvre. With borrowing costs elevated and competing spending pressures remaining significant, difficult decisions on tax and spending are likely to remain unavoidable.
“Monthly GDP grew by 0.4% in July, suggesting the economy remains on course for expansion in the third quarter. However, we expect momentum to slow in August and September, as higher energy and borrowing costs act as a headwind against growth."
