UK Economy Defies Expectations as Rate Hikes Loom

The UK economy has defied expectations by growing 0.4% in July, prompting money markets to price in four quarter-point increases in Bank Rate by July 2027.

This would lift borrowing costs from 3.75% to 4.75%, as the Office for National Statistics data published on Friday showed the economy was more resilient than anticipated.

Economists had expected summer spending, boosted by the World Cup and heatwaves, to fade in July, but instead, the economy proved unexpectedly strong.

Andrew Wishart, senior UK economist at Berenberg, said the surprise reading suggested interest rates were not bearing down on demand as much as the Bank of England may have assumed.