UK economy unexpectedly accelerated amid AI boom

The UK economy grew by 0.4% in July compared to the previous month, significantly beating economists' expectations of stagnation. One of the main drivers were technology and artificial intelligence-related companies.

These are the data from the UK Office for National Statistics (ONS).

The July result was an acceleration compared to June, when UK GDP grew by 0.3%. In May, the economy showed no growth.

In annual terms, GDP in July was 1.6% higher than a year earlier. This is the fastest annual growth rate of the UK economy in about a year and a half.

AI became one of the growth drivers

The main contribution to the July result was made by the services sector, which grew by 0.4%. Information and communication services showed particularly strong dynamics - their output increased by 2.5%.

Within this segment, computer programming, consulting and related services grew by 4.4% and became the largest single source of growth in the services sector.

The ONS notes that among the companies that reported the largest increase in turnover, a significant part works with artificial intelligence and cloud computing. The statistical office also recorded strong growth over the year in industries related to computer programming.

Another strong segment was professional, scientific and technical services, which grew by 2.1% in July. In particular, the volume of work in the field of scientific research and development increased by 7%.

Thus, the strong result of the UK economy was largely provided by industries that directly benefit from the deployment of AI, data centers, cloud infrastructure and increased technology investments.

Growth was recorded in all major sectors

Besides services, industrial production increased by 0.2% in July. Manufacturing grew by 0.9%, although this result was partially offset by declines in mining and the reduction in electricity and gas production and supply.

Construction added 0.1% after falling in the previous two months. The growth was provided by repair and maintenance work, while the volume of new construction continued to decline.

Looking at the less volatile three-month indicator, in May-July the UK economy also grew by 0.4% compared to the previous three months. The pace remained the same as in the second quarter.

Consumer sector looks weaker

Despite the strong overall indicator, the data do not indicate equally fast recovery across the whole economy. Consumer services contracted in July, partly due to weaker activity in retail and hospitality.

Economists also warn that further growth may slow down due to a sharp rise in energy prices. Oil rose above $100 per barrel amid tensions in the Middle East, increasing inflationary pressure and raising costs for UK companies and households.

Higher energy prices simultaneously reduce the chances of rapid monetary policy easing. After the latest jump in oil prices, financial markets, on the contrary, have started to price in the possibility of another rate hike by the Bank of England.

Thus, the unexpectedly strong July gave the UK a good start to the third quarter, but a significant part of the momentum is concentrated specifically in technology and AI-related sectors, while consumer sectors remain under pressure.

Based on materials from: Office for National Statistics, The Guardian, Sky News