UK GDP: Still surprisingly strong, some AI support?

UK GDP is proving stronger than expected, with early but inconclusive evidence that AI-related activity is contributing to the rebound.

• GDP increased 0.4% month-on-month in July, versus a 0.0% consensus expectation, while rolling three-month growth rose from 0.3% to 0.4%.
• If output is flat in August and September, third-quarter GDP growth would reach 0.6% quarter-on-quarter, above the Bank of England's July forecast.
• Services output rose 0.4% month-on-month, including 3.5% growth in computer programming, consultancy and related services; businesses linked to AI and cloud computing reported some of the largest turnover increases.
• Production output rose 0.2% month-on-month, driven partly by a 0.9% increase in manufacturing, while construction output grew 0.1%; the manufacturing rebound may partly reflect June's 0.9% decline.
• The authors caution that warm weather and the World Cup may have affected activity, and that the labour market remains weak despite tentative productivity improvement.

Takeaway: Stronger growth may marginally increase the probability of a Bank of England rate hike this year, especially with renewed oil, gas and potential food-price pressures, but the AI-growth narrative remains too early to carry much weight and policy will focus primarily on inflation indicators.