Uk economy defies gravity with surprise july growth

Key arguments

• July GDP rose 0.4% versus expectations of zero growth, following a 0.3% gain in June.
• IT accounts for just 7% of economic activity but roughly half of June's rise; on an annual basis it contributes a third of the 1.5% y/y growth rate.
• Solid capex in 'other buildings' is suspected to be data-centre investment, likely tied to AI.
• UK GDP has a recurring pattern of stronger first-half than second-half performance since 2022, which ING attributes to seasonal adjustment difficulties in a high-inflation period.
• Benign food inflation has eased the initial household income squeeze from the Iran war.
• The Bank of England remains focused on inflation and relies on survey-based activity measures; ING expects a 6-3 vote to keep rates on hold and no hikes in coming months.
• Rising energy prices, particularly natural gas, are a headache for the Bank, but there is little sign of second-round effects broadening inflation.

Corresponding source evidence

1. We think that can be partly explained by the simple fact that inflation hasn’t risen as much as it could have done.
2. We expect another 6-3 vote to keep rates on hold next week, and we remain unconvinced that the Bank will hike rates at all over the coming months. · next week