UK economy grows 0.4% in July against forecasts of none
The ONS says IT firms reporting the largest turnover appear to be involved with AI, while cautioning that the effect is hard to quantify. Economists expect energy prices to slow growth from here.
The UK economy grew by 0.4% in July, the Office for National Statistics said, against analyst forecasts of no growth at all. Businesses using artificial intelligence were part of the reason.
The figure follows growth of 0.3% in June and zero growth in May. Over the three months to July, which gives a better underlying picture, the economy grew 0.4% compared with the previous three months.
Where the growth was
July's expansion was helped by a strong performance from the services sector, and within it particularly by computer programming.
Liz McKeown, the ONS director of economic statistics, said there was evidence that businesses involved with AI and related technologies had boosted the sector — not only in July but in May and June as well.
The ONS said many of the IT businesses reporting the largest turnover "appear to be involved with AI", while cautioning that it is difficult to quantify the exact impact.
That caveat is worth keeping. The statistical agency can see which firms are growing and can see what those firms describe themselves as doing; it cannot isolate how much of the growth the technology itself produced.
The other explanations
McKeown said some businesses had reported that warm weather and the football World Cup affected activity in July. Those effects "differed across industries, benefitting some businesses while creating challenges for others", she said.
Weather and a major tournament move hospitality, retail and transport in opposite directions from one another, which is why they tend to wash out of a headline figure even while being significant for individual sectors.
A view from inside the sector
Rob Arnold, co-founder of Ascendea, an AI firm employing nine people, said the UK has not yet seen the technology's real economic potential.
He said his company can develop apps for other businesses "100 times quicker at a 50th of the cost" because of AI, but argued that the government needs to invest more in the sector, because the opportunities are currently better in the United States.
Arnold said he knows several small UK-based AI firms that have either moved to the US or are considering it because of a lack of government support.
Alongside grants and funding, he argued the government should invest in training companies to use AI properly, because it can be dangerous if not understood. "It's like playing with a weapon," he said.
What economists expect next
Paul Dales, chief UK economist at Capital Economics, said the July data showed "the resilience of the economy in the first half of the year continued into the second half".
He added that higher energy prices and borrowing costs would soon start to hit growth, especially if the rises seen this week are sustained.
That is the consistent reading among the experts quoted: the economy is proving resilient in the face of shocks including the war in Iran, but growth is expected to slow in the months ahead as high energy prices reach households.
The rate decision
The war has produced a sharp jump in oil prices, which has fed through into higher energy and fuel prices for households and businesses. The rise has raised concerns that inflation will stay high, and with it the likelihood that central banks raise interest rates to contain it.
The Bank of England meets next week. Economists widely expect rates to be held, though some have predicted an increase before the end of the year.
The political response
Chancellor John Healey said the economy was "demonstrating a welcome resilience, despite serious global uncertainty".
He added that growth, while still fragile, was the fastest in the G7 in the first half of the year.
Reading the number
Two things sit together in this release. A month of 0.4% growth where none was forecast is a genuine upside surprise, and the three-month figure confirms it is not a single-month artefact.
Against that, the drivers economists expect to slow the economy — energy costs and borrowing costs — largely arrived after the period being measured. July's data predates this week's oil move.
