The UK economy unexpectedly grew 0.4% in July, providing a boost for the Burnham government.

Zhitong Finance APP reported that despite a substantial rise in household energy bills, the UK economy strengthened across the board in July, once again exceeding market expectations. According to data released by the UK Office for National Statistics on Friday, gross domestic product (GDP) grew by 0.4% month-on-month in July, well above market expectations and up from a 0.3% increase in June.

This marks the third consecutive month that UK economic growth has surpassed economists' forecasts, suggesting the UK may defy external expectations of a significant slowdown in the second half of 2026. Following the release of the data, the pound exchange rate remained largely unchanged.

The July figures put the UK economy on track for a better-than-expected performance in the third quarter, after markets generally anticipated a sharp slowdown in growth to 0.1%. The UK Office for National Statistics stated that service sector activity grew by 0.4%, industrial production increased by 0.2%, and construction output rose by 0.1%.

The UK Office for National Statistics noted: "Within services, computer programming was the largest contributor, continuing a strong growth trend throughout the year, with evidence suggesting that firms involved in artificial intelligence (AI) and related technologies are driving growth in the sector. R&D and leasing businesses also contributed to growth, while wholesale business saw a significant decline."

In the first half of the year, the UK's economic performance outpaced all other G7 members, but pressures from the energy price shock are expected to weigh on businesses and consumers. However, Friday's data showed early signs that the economy remains resilient, with the new Prime Minister Andy Burnham's appointment boosting household confidence.

Earlier this week, UK Chancellor John Healey pledged to streamline regulation and reduce business operating costs in an effort to boost the "fragile" growth rate. The Burnham government is banking on economic growth to provide the tax revenue needed to fund its ambitious spending plans, covering areas such as defense, public housing and social security.

Healey will announce his first budget since taking office on October 28, which will also be the Burnham government's first fiscal budget. Economists have warned that a bond market sell-off has pushed borrowing costs to the highest levels in decades, further eroding his already limited fiscal cushion. They noted that potential tax hikes to make up for the fiscal gap could further discourage households and businesses from spending and investing.

Traders broadly expect the Bank of England to keep interest rates unchanged at 3.75% next week, but this week's rise in oil prices has prompted financial markets to bet on a series of rate hikes in the next 12 months.