United Kingdom: Growth outlook strengthens with AI-driven services – Deutsche Bank

Deutsche Bank’s Chief UK Economist Sanjay Raja highlights stronger-than-expected UK GDP data, with July output rising 0.4% month-on-month and broad-based gains across services, production and construction. He notes particularly strong momentum in information and services linked to AI capex, and argues that UK growth and productivity trends are improving, prompting Deutsche Bank to upgrade its near-term GDP projections for Q3 and annual growth.

AI-linked services power UK expansion

"Yet again, the UK economy surprised – and surprised in a good way. July GDP bucked all expectations, expanding by 0.4% m/m. This was a broad-based rise, with the services sector up 0.4% m/m, production sector up 0.2% m/m (with manufacturing rising by 0.9% m/m) and construction output up 0.1% m/m."

"What’s going on? If we look at the services sector in the UK – the engine of growth in the country – signs of AI capex are coming through even more. It was the information and services sector that saw significant growth, with telecoms up 1.1% m/m, computer programming/consultancy services up 3.5% m/m and information services activities up 1.1% m/m."

"What does this all mean for the UK economy? We came into this year more optimistic than our peers. But the UK growth story is becoming harder to ignore."

"Annualised growth is now tracking at 2.4%. Households and businesses are still spending – despite the unfolding energy shock impacting disposable incomes. There’s clearly something happening here."

"We expect forecasters to ratchet up their projections yet again after today. Indeed, summer GDP growth now looks poised to be four times larger than we thought (our official expectation was for Q3-26 GDP to expand by 0.1% q/q – we now look on track to expand by 0.4% q/q)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)