The UK economy grew unexpectedly in July, with the boom in artificial intelligence spending helping to offset signs of strain on household finances. Gross domestic product rose by 0.4%, beating economists' forecasts of no growth, in figures that offer a welcome boost to Chancellor John Healey ahead of his first autumn Budget next month, though analysts cautioned the headline number masks weaker consumer-facing activity.

The Office for National Statistics said the services sector drove growth, expanding 4%, with computer programming, consultancy and IT firms tied to AI and cloud computing making the largest contribution. Production output rose 0.2% on gains in manufacturing and water supply, while construction grew 0.1% on housing repair work, though pub and restaurant spending eased back after June's heatwave and World Cup boost. Economists at KPMG and the Item Club warned that growth was narrowly concentrated in business-facing tech and administrative sectors, with rising energy, fuel and mortgage costs likely to squeeze households and slow momentum into August and September.