UK economy shows 'remarkable resilience', AI boom starts showing up in the growth figures

The UK economy continues to exhibit remarkable resilience in the face of prevailing downside risks to the outlook.

Britain’s GDP grew by a robust 0.4% MoM in July - the fastest pace of expansion since February and well above the 0% consensus.

The IT component of GDP continues to punch well above its weight, accounting for around half of the gain, in an early sign that increased spending on AI infrastructure is being reflected in a positive way in the economy. There was no real reaction in sterling following the release of the data though, with the pound far more beholden today to this afternoon’s US CPI report.

Further confirmation of the resilience in the UK economy will be welcome news to chancellor Healey ahead of next month’s budget, after he’s seen much of his fiscal headroom wiped away by the recent rise in gilt yields.

There will also be a temptation of swap markets to raise bets in support of higher Bank of England rates, though we would caution against that given that the focus is on inflation and, so far, we are not seeing clear evidence that any second order effects are taking hold.