UK Economy Keeps Growing, But Where Is the Growth Coming From?

11th September 2026

Britain's economy continued to grow in July, but the latest figures from the Office for National Statistics suggest that the recovery remains rather uneven.

Gross domestic product increased by 0.4% in July, following growth of 0.3% in June and no growth in May. Looking at the less volatile three-month measure, GDP grew by 0.4% in the three months to July compared with the previous three months.

That means the economy has now recorded eight consecutive three-month periods of growth. But there is an important qualification. Growth has been slowing, from 0.6% in the three months to May to 0.4% in both June and July.

The figures therefore do not point to a booming economy. They suggest an economy that is moving forwards, but rather slowly.

And once the figures are examined more closely, an even more interesting picture emerges.

Services are doing most of the work

The main engine of growth remains Britain's huge services sector.

Services output increased by 0.6% in the three months to July. By comparison, production fell by 0.5% and construction also fell by 0.5%.

Services were responsible for the largest contribution to overall GDP growth.

Professional, scientific and technical activities performed particularly strongly, increasing by 2.1% over the three months. Information and communication also grew by 2.5%, while administrative and support services increased by 1.3%.

There is an interesting development buried in the information and communication figures. Computer programming, consultancy and related activities increased by 3.5% in July alone.

The ONS says there is evidence that many of the businesses reporting the largest turnover in this area are involved in artificial intelligence and cloud computing. However, it warns that its data do not allow it to quantify precisely how much of the growth is actually coming from AI.

That is worth watching because it may be one of the early signs of where economic growth will come from in the years ahead.

But the physical economy is struggling

The contrast with production is striking.

Production output fell by 0.5% in the three months to July, despite recovering by 0.2% in July itself.

Mining and quarrying fell by 2.6% over the three-month period, while electricity, gas, steam and air-conditioning supply fell by 1.5%. Water supply, sewerage, waste management and remediation fell by 4%.

Manufacturing was more encouraging, growing by 0.5%.

Computer, electronic and optical products increased by 3.9%, machinery and equipment by 3%, while food, beverages and tobacco manufacturing rose by 1.1%.

So there are some pockets of strength in manufacturing, but they are not enough to offset weakness elsewhere.

This is significant for a country that needs investment in infrastructure, energy and manufacturing if it is to improve productivity and living standards over the longer term.

Construction is another warning sign

Construction output fell by 0.5% in the three months to July.

New work fell by 0.4% while repair and maintenance dropped by 0.7%. Particularly striking was an 8.4% fall in public housing new work.

There was a small improvement in July itself, with construction output rising by 0.1%. But this was entirely because repair and maintenance increased by 0.8%, while new work actually fell by 0.4%.

That distinction matters.

Britain has a well-known shortage of housing, yet the latest figures do not suggest that housebuilding is accelerating. Indeed, public housing construction was one of the weaker areas.

For places such as Caithness, where housing shortages can constrain both businesses and population growth, the national figures are worth watching.

Consumers are not exactly rushing back

Consumer-facing services grew by 0.5% over the three months to July, but fell by 0.4% in July itself.

Retail had performed reasonably well in May and June but fell by 0.5% in July. Accommodation was stronger, increasing by 2.6% during the month.

The figures also show some weakness in food and drink services and travel-related businesses over the three-month period.

This perhaps reflects the complicated position facing households. People are still spending, but higher costs and continuing uncertainty can make consumers cautious.

The ONS says economic uncertainty was still the most commonly reported challenge affecting turnover among trading businesses in August, while labour costs remained the biggest challenge among larger businesses.

Energy and fuel costs were also a major concern. In late August, 59% of businesses reported some degree of concern about energy prices and 63% about fuel prices.

The weather and the World Cup also mattered

The July figures were affected by some unusual factors.

Britain experienced exceptionally warm weather, with the Met Office provisionally recording July as the UK's second warmest July on record.

That helped some businesses, including parts of manufacturing, accommodation and entertainment, but hurt others such as construction and personal services.

The FIFA World Cup also affected some businesses, with pubs, clubs, advertising and some manufacturing businesses reporting positive effects. Restaurants, however, reported some negative effects.

These factors illustrate why a single month's GDP figure should not be treated as a precise measure of the underlying economy.

So is Britain doing well?

The answer depends on what part of the economy you look at.

Overall GDP is growing. Compared with the same three months a year earlier, GDP was 1.3% higher. Compared with July 2025 alone, it was 1.6% higher.

But the composition of that growth raises questions.

Services are expanding while construction is contracting and production remains weak. That is not necessarily a crisis, but it does highlight Britain's long-standing dependence on services.

There is another important point. The ONS is about to undertake its annual Blue Book revisions. The entire GDP time series will be open to revision in the October release, incorporating new information and methodological improvements.

So today's figures are useful, but they are not the final word.

Perhaps the most accurate description of the British economy at present is therefore neither recession nor boom.

It is an economy that is still growing, but slowly, unevenly and with considerable reliance on services.

The more important question for the Government is whether that growth is strong enough to raise productivity, encourage investment, build more homes and improve living standards.

A 0.4% monthly increase in GDP is welcome.

But Britain needs rather more than a sequence of small increases if it is going to feel substantially more prosperous.

Read the full ONS report HERE