The Office for National Statistics has reported that UK economy GDP growth in July came in at 0.4 per cent, well ahead of City economists’ forecasts of zero growth, in the first month of Andy Burnham’s tenure as Prime Minister.
The services sector, which accounts for around 80 per cent of GDP output, led the way with growth of 0.4 per cent. Production expanded 0.2 per cent and construction added 0.1 per cent.
Liz McKeown, director of economic statistics at the ONS, pointed to computer programming as the single largest contributor within services. ‘Within the services sector, computer programming was the largest contributor, continuing the strong growth seen throughout the year, with evidence that businesses involved with AI and related technologies helped to boost the sector,’ she said. McKeown added that some businesses saw a diverse range of impacts from the World Cup, with some beneficiaries while ‘creating challenges for others’.
The figures cover the final months of Rachel Reeves’ Chancellorship before she was ousted after Burnham entered No 10 Downing Street on 20 July.
Gilt yields and borrowing costs cloud UK economy GDP growth picture
The better-than-expected growth data does little to ease the pressure on Burnham’s Chancellor, John Healey. A global bond sell-off has pushed UK borrowing costs sharply higher, with the yield on 20-year gilts surging to 5.82 per cent and 30-year bonds climbing to 5.9 per cent, according to the Telegraph, both the highest levels since 1998.
The context is made harder still by the scale of the existing debt burden. Interest payments on the national debt cost £109bn, equivalent to 3.6 per cent of GDP, in 2025/26, according to the House of Lords Library. The same source notes that in November 2025, the Office for Budget Responsibility forecast that the government would meet its current budget rule by a margin of £22bn, or 0.6 per cent of GDP, in 2029/30. Analysts have warned that the recent gilt sell-off could reduce that headroom by as much as half.
Some economists have warned that Healey has little room for further borrowing and may be forced to raise taxes at his first Budget in order to stay within the fiscal rules, which require day-to-day spending to match receipts by 2030. Top bosses of Britain’s largest industry groups have urged the Chancellor to reduce the cost of business ahead of that fiscal event.
Healey’s first major speech and the JLR backdrop
In his first major speech in the role earlier this week, Healey declined to ‘speculate on questions of tax’. He laid out his focus on boosting growth ‘in more places’ and its importance in securing the public finances. Answering media questions, the former defence minister said the government was ‘keeping’ Labour’s 2024 manifesto pledges that ruled out hikes to income tax, VAT and national insurance.
The speech came almost simultaneously with news from Jaguar Land Rover, which is headquartered in Coventry, where the speech took place. The company confirmed plans to cut thousands of jobs as it looks to slash around £1.7bn from its cost base over the next two years, a reminder that the positive GDP headline sits alongside real strain in parts of British industry.
For Healey, the July GDP figures provide a degree of political breathing room, but the combination of elevated gilt yields, a substantial debt interest bill and limited fiscal headroom means his first Budget will be shaped as much by the bond market as by any growth dividend.
