UK Economy Expands Unexpectedly

(RTTNews) - The UK economy expanded unexpectedly in July driven by artificial intelligence and cloud computing gains in the services sector, official data revealed Friday.

Gross domestic product posted a monthly growth of 0.4 percent, following an increase of 0.3 percent in June and no growth in May, the Office for National Statistics reported. GDP was expected to remain flat in July.

The dominant service sector expanded 0.4 percent and construction output grew 0.1 percent in July.

Industrial production moved up unexpectedly by 0.2 percent, offsetting June's 0.2 percent decrease. Economists had forecast output to shrink 0.2 percent.

Within industry, manufacturing output advanced 0.9 percent, while mining and quarrying output was down 4.4 percent. Electricity, gas, steam and air conditioning output slid 1.5 percent and water supply sewerage and waste management grew 2.0 percent.

On a yearly basis, GDP climbed 1.6 percent in July compared to forecast of 1.2 percent.

In the three months to July, GDP gained 0.4 percent, the same pace of expansion as seen in the three months to June. The economy was expected to grow 0.3 percent.

ING economist James Smith cautioned GDP figures overstate the true pace of economic growth. Roughly half of June's rise in output was down to IT, a sector that makes up just 7 percent of total economic activity, he noted.

Smith expects the Bank of England policymakers to keep interest rates on hold in 6-3 vote.

Confederation of British Industry Senior Lead Economist Ben Jones said stronger-than-expected growth in July suggests that the economy carried some of its first-half momentum into the third quarter.

"But although the economy has proved more resilient to the fallout from the Middle East conflict than initially seemed likely, the second half of the year looks a bit more challenging," added Jones.

"While today's headline growth data is welcome news, the warning lights of cost pressures and global uncertainty are still flashing for many of the businesses we represent," British Chambers of Commerce Research Manager Stuart Morrison said.

A separate ONS report showed that the visible trade deficit narrowed to GBP 20.96 billion in July from GBP 23.0 billion in June. At the same time, the surplus on services trade remained broadly unchanged at GBP 17.5 billion.

As a result, the total trade deficit declined to GBP 3.45 billion from GBP 5.54 billion in the previous month.