The UK economy expanded by 0.4% in July, beating expectations and following a 0.3% rise in June, according to the Office for National Statistics, with growth concentrated in professional services, technology and administrative sectors. Separately, US inflation data released the same day showed monthly prices rose 0.4% in August, though the annual rate held at 3.4% and core inflation eased slightly. Analysts also flagged expectations of four UK interest rate hikes by next summer.
What drove the UK’s July growth?
The expansion was led by a broad-based services performance, with 11 of 14 subsectors reporting gains. Professional, scientific and technical activities rose 2.1%, powered by a 7.0% jump in scientific research and development, alongside gains of 3.1% in legal services and 3.4% in advertising and market research. Information and communication output climbed 2.5%, driven largely by a 4.4% increase in computer programming and consultancy work, while administrative and support services rose 1.3%, reflecting strong growth in rental and leasing activity and services to buildings and landscaping.
Economists said the figures pointed to underlying resilience in the economy despite ongoing pressure from elevated energy prices. Household consumption and business investment both contributed positively to the quarter, reinforcing the view that momentum built steadily through the second quarter rather than stalling.
The rise in GDP was slightly stronger than expected and suggests the economy has remained resilient to the surge in energy prices, analysts said.
How does US inflation compare?
In the United States, consumer prices increased 0.4% month-on-month in August, a faster pace than in prior months, though the annual inflation rate remained unchanged at 3.4%. Core inflation, which strips out volatile food and energy costs, edged slightly lower, suggesting underlying price pressures may be beginning to moderate even as headline monthly readings stayed elevated.
What does this mean for interest rates?
Market watchers are now pricing in four separate UK interest rate increases before next summer, a signal that policymakers may see the stronger-than-expected growth and persistent inflation pressures as reasons to tighten monetary policy further. The combination of resilient UK output and sticky US price growth is likely to keep central banks on both sides of the Atlantic cautious about easing policy in the near term.
