UK Economy Grew 0.4% in July Against Forecasts of Zero: What It Means for Rates

What the ONS reported

The Office for National Statistics published its monthly GDP estimate for July 2026 at 07:00 on 11 September 2026. The figures showed that UK GDP grew by 0.4% in July. Economists polled had expected zero growth in July, so the outturn was stronger than the consensus forecast. The ONS also reported that over the three months to July 2026, GDP grew 0.4% compared with the three months to April. That marked the eighth consecutive three-month period of growth. The monthly estimate is volatile and the ONS advises reading it alongside the three-month rate. First estimates are routinely revised, so the picture may change as more data become available.

In context, the June release had shown GDP grew 0.4% in the three months to June, revised from 0.6% in the three months to May. The UK recorded the fastest growth in the G7 in the first half of 2026 at 1.0%. The July figures suggest the economy continued to expand at a modest pace. GDP was 1.6% higher in July 2026 than in July 2025. Over the three months to July, GDP was 1.3% higher than a year earlier. These annual comparisons help to smooth out monthly volatility and give a clearer view of the underlying trend.

Which sectors grew and which fell

In July, services output grew 0.4%, production grew 0.2% and construction grew 0.1%. The ONS said services drove the growth, with computer programming making the largest contribution. That sector includes many professional and technical services, from software development to IT consulting. The broad-based growth in services suggests that consumer and business demand held up in July. Production, which covers manufacturing, mining and utilities, grew more slowly but still contributed positively. Construction grew only marginally, reflecting ongoing challenges in that sector.

Over the three months to July, the sector picture was more mixed. Services grew 0.6% over that period, while production fell 0.5% and construction fell 0.5%. The divergence shows that the services sector is carrying the economy, while goods-producing industries and construction are acting as a drag. The ONS also published UK trade and construction output figures for July alongside GDP. Construction output fell over the three months to July, consistent with the GDP data. These sectoral details matter because they show where growth is coming from and where weaknesses remain.

Why the three-month figure matters more than the monthly one

Monthly GDP is volatile and the ONS advises reading it alongside the three-month rate. A single month can be distorted by one-off factors such as strikes, holidays or unusual weather. The three-month rate smooths out some of that noise and gives a better sense of the underlying momentum. In this case, the three-month rate to July was also 0.4%, matching the monthly figure. That consistency suggests the growth is not just a one-month blip. The three-month rate also showed the eighth consecutive period of growth, which indicates a sustained expansion rather than a temporary bounce.

First estimates are routinely revised. The ONS often updates its initial figures as more data come in from businesses and other sources. For example, the three months to June was initially estimated at 0.6% in the three months to May, but was later revised to 0.4% in the three months to June. Such revisions can change the narrative. For households and businesses, it is therefore wise to look at the broader trend rather than reacting to a single month's number. The three-month rate, while still subject to revision, provides a more stable guide to the economy's direction.

What it means for interest rates and your mortgage

Stronger growth reduces pressure on the Bank of England to cut Bank Rate quickly. The Monetary Policy Committee's next decision is due on 17 September 2026. Mortgage pricing for fixed deals follows market expectations of Bank Rate. When markets expect rates to stay higher for longer, fixed mortgage rates may not fall as quickly as they otherwise would. This affects both new borrowers and those remortgaging. Homeowners on tracker or variable rate mortgages, which move directly with Bank Rate, may see their payments stay higher for longer if the Bank does not cut rates soon. However, the Bank's decision will depend on a range of factors, including inflation and the labour market, not just GDP.

It is important to note that the Bank of England has not yet decided what to do on 17 September. The GDP figures are one input into its decision-making. The Bank's remit is to keep inflation at 2%, and it will weigh the growth data against other evidence. For mortgage holders, the key point is that a stronger economy may mean the Bank is less inclined to cut rates quickly. That could keep mortgage rates elevated compared with the low levels seen in the past. Borrowers should consider their own circumstances and may wish to seek independent financial advice.

What it means for savings, prices and jobs

Savings rates tend to move with Bank Rate. If the Bank keeps rates higher for longer, savings rates may remain relatively attractive. However, if the economy slows and the Bank cuts rates, savings rates could fall. The July GDP figures, showing stronger growth, may reduce the likelihood of an imminent rate cut, which could support savings rates in the near term. But savings rates also depend on competition among banks and building societies, and on market expectations for future rates. For savers, it is worth shopping around for the best deals, as rates can vary significantly between providers.

Faster growth generally supports hiring and wage growth but can keep inflation higher for longer. If the economy grows strongly, businesses may be more willing to hire and may offer higher wages to attract staff. That can be good for workers, but it can also feed into inflation if businesses pass on higher wage costs to consumers through higher prices. The Bank of England expects inflation to rise to around 3.2% later in 2026. That is above the 2% target. If inflation stays high, the Bank may be cautious about cutting rates. For households, this means that while growth may bring more job opportunities and wage increases, it could also mean that prices continue to rise at a faster pace than the target.

The risks economists are watching

Economists have cited several risks this year. Energy costs are a key concern after the conflict involving Iran pushed oil above $105 a barrel. Higher oil prices can feed through to petrol, heating and electricity costs, putting pressure on household budgets and business costs. If energy prices remain high, they could dampen growth and keep inflation elevated. The Bank of England expects inflation to rise to around 3.2% later in 2026, partly reflecting these energy pressures. The conflict and its impact on oil markets remain uncertain, and further escalation could push prices higher.

Another risk is the weakness in production and construction. Over the three months to July, production fell 0.5% and construction fell 0.5%. If these sectors continue to contract, they could drag on overall growth. Construction is sensitive to interest rates, so higher borrowing costs may be weighing on activity. Production faces global headwinds, including trade tensions and supply chain issues. The services sector has been the main engine of growth, but if it slows, the economy could lose momentum. Economists will be watching these sectors closely for signs of stabilisation or further decline.

What comes next: revisions and the Bank of England on 17 September

The ONS will continue to revise its GDP estimates as more data become available. The first estimate for July may be revised in subsequent releases. The three-month rate to July could also be revised. These revisions are a normal part of the process and can change the picture of the economy's performance. For example, the three months to June was initially reported as 0.6% in the three months to May, but was later revised to 0.4% in the three months to June. Such changes highlight the importance of not overreacting to a single data release. The ONS will publish further data in the coming months, including the next monthly GDP estimate and any revisions to previous figures.

The Bank of England's Monetary Policy Committee will announce its next decision on 17 September 2026. The GDP figures will be one of many inputs the Committee considers. Other factors include inflation, employment, wage growth and global economic conditions. The Committee's decision will affect interest rates, which in turn influence mortgages, savings and borrowing costs. It is not possible to predict what the Committee will decide. Households and businesses should consider their own circumstances and may wish to seek independent advice. The next inflation data, due before the meeting, will also be closely watched.

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Frequently asked questions

What did the ONS report for July GDP?

The Office for National Statistics reported that UK GDP grew by 0.4% in July 2026. Economists had expected zero growth. The ONS said services drove the growth, with computer programming making the largest contribution. Over the three months to July, GDP also grew 0.4% compared with the three months to April, the eighth consecutive three-month period of growth. The ONS advises reading the volatile monthly figure alongside the three-month rate.

Which sectors grew and which fell in July?

In July, services output grew 0.4%, production grew 0.2% and construction grew 0.1%. The ONS said services drove the growth, with computer programming making the largest contribution. Over the three months to July, services grew 0.6%, while production fell 0.5% and construction fell 0.5%. The divergence shows that services are carrying the economy, while goods-producing industries and construction are acting as a drag. Construction output fell over the three months to July.

Why does the three-month figure matter more than the monthly one?

Monthly GDP is volatile and the ONS advises reading it alongside the three-month rate. A single month can be distorted by one-off factors such as strikes, holidays or unusual weather. The three-month rate smooths out some of that noise and gives a better sense of underlying momentum. In this case, the three-month rate to July was also 0.4%, matching the monthly figure. First estimates are routinely revised, so the three-month rate provides a more stable guide to the economy's direction.

What does the GDP figure mean for interest rates and mortgages?

Stronger growth reduces pressure on the Bank of England to cut Bank Rate quickly. The Monetary Policy Committee's next decision is due on 17 September 2026. Mortgage pricing for fixed deals follows market expectations of Bank Rate. When markets expect rates to stay higher for longer, fixed mortgage rates may not fall as quickly. Homeowners on tracker or variable rate mortgages may see payments stay higher for longer if the Bank does not cut rates soon. The Bank's decision will depend on many factors.

What does it mean for savings, prices and jobs?

Savings rates tend to move with Bank Rate. If the Bank keeps rates higher for longer, savings rates may remain relatively attractive. Faster growth generally supports hiring and wage growth but can keep inflation higher for longer. The Bank of England expects inflation to rise to around 3.2% later in 2026. If inflation stays high, the Bank may be cautious about cutting rates. For households, growth may bring more job opportunities and wage increases, but prices could continue to rise faster than the 2% target.