UK Economy Beats Forecasts as Services Lead Growth

The UK economy showed stronger-than-expected growth in July, rising 0.4% compared to June's 0.3%, according to data from the Office for National Statistics.

This marked a year-on-year increase of 1.6%, with services leading the way and production returning to growth. Construction also saw a slight uptick, indicating that economic activity remained stable heading into the third quarter.

Economists warn, however, that household energy bills are set to rise, and global bond yields remain volatile, which could push borrowing costs higher. Danske Bank remains cautious, keeping its base case that the Bank of England will hold the Bank Rate at 3.75% until the second quarter of 2027.

This high interest rate environment is expected to continue exerting pressure on UK-demand-linked companies, which may face increased borrowing costs and a higher discount rate from investors. The FTSE 100 has taken this into account, with traders weighing the implications for interest rates and financial conditions.