The UK economy expanded by 0.4% in July as services, production, and construction all recorded monthly growth, extending the recovery into the second half of 2026.
Figures from the Office for National Statistics show that gross domestic product increased after growth of 0.3% in June and no growth in May.
Services output rose by 0.4% during July, production increased by 0.2%, and construction grew by 0.1%.
GDP was also 0.4% higher across the three months to July than during the three months to April, marking an eighth consecutive period of three-month-on-three-month growth.
The sector picture over that longer period was less balanced. Services expanded by 0.6%, while production and construction each contracted by 0.5%, leaving the economy substantially reliant on services for its underlying momentum.
Compared with the same three months of 2025, GDP was 1.3% higher. Output in July alone was estimated to be 1.6% above its level a year earlier.
The latest figures provide a stronger starting point for the second half of the year after a subdued period for business investment, manufacturing, and construction, although the monthly rise does not remove the constraints facing companies making longer-term spending decisions.
Recent business surveys have also produced a mixed picture. BDO’s August Optimism Index rose to a near two-year high, while employment remained comparatively weak.
The British Chambers of Commerce has separately raised its forecast for UK GDP growth in 2026 to 1.0%, but it still expects business investment to contract by 0.2% this year. Only 17% of companies in its latest survey said they were increasing investment.
That separation between current output and capital spending will influence how durable the recovery becomes. Consumer activity and stronger service-sector demand can lift GDP in the near term, but productivity and economic capacity depend heavily on companies committing money to equipment, software, automation, research, property, skills, and expansion.
Businesses have continued to report several reasons for caution. Financing costs remain high by the standards of much of the previous decade, labour costs have increased, energy remains a concern, and uncertainty around taxation and government policy can make discretionary investment easier to postpone.
The sector figures reinforce that unevenness. Services continued to provide the largest contribution to growth over the latest three-month period, while production and construction both moved backwards.
Manufacturers remain exposed to energy costs, supply chain disruption, international demand, trade policy, and the cost of financing new capacity. Construction companies face their own combination of borrowing conditions, planning constraints, labour availability, public-infrastructure pipelines, and commercial property demand.
A recovery dominated by services is therefore different from one accompanied by sustained expansion in industrial output and building activity. Broader sector participation would provide a stronger indication that higher demand is feeding through into physical investment and productive capacity.
Inflation will also shape the interpretation of the growth figures. Stronger activity supports company revenues and tax receipts, but persistent price pressure can limit the scope for lower interest rates.
Borrowing costs influence much more than household mortgages. They affect property development, acquisitions, working capital, fleet investment, machinery purchases, technology projects, and the returns required before a company will approve a new capital programme.
The July figures will consequently feed into both monetary and fiscal decisions during the autumn. The government is preparing its next Budget while the Bank of England continues to assess whether inflation is sufficiently contained for borrowing conditions to ease.
The ONS has also warned that the historical GDP series will be open for revision with its next monthly release on 15 October as Blue Book 2026 changes are incorporated. An indicative revised monthly path is due with the quarterly national accounts on 30 September.
Early GDP estimates are routinely revised as additional information becomes available, so the precise monthly profile can change. The current data nevertheless show a second consecutive month of expansion and positive July contributions from each of the three main sectors.
The next test is whether that growth becomes broad enough to support a sustained improvement in business investment. Without stronger capital expenditure and a more consistent contribution from production and construction, the economy can continue expanding while the productivity constraints underlying weak longer-term growth remain in place.
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