Britain is growing. Will Healey mess it up?

There are lots of reasons to seriously worry about the economy at the moment. The price of oil is surging, bonds are slumping (meaning yields are up again) and interest rate hikes are possible.

So it’s a relief to see this morning’s GDP figures, just published by the Office for National Statistics (ONS), show Britain’s economy grew by 0.4 per cent in July. Most forecasts had predicted there’d be no growth at all.

Instead, strong growth in the services sector was enough to cancel out weaker figures in production and construction. Within services, the largest contributing industries were admin and support services with the ONS saying computer programming and consultancy too. According to statisticians, this seems to be evidence of AI contributing to growth in the British economy for the first time.

Over the three months to July, growth was also 0.4 per cent, down slightly from the 0.6 per cent which the economy grew in the three months to May. The World Cup and hot weather no doubt helped too. Add it all up and it means annualised growth is currently on track to hit 2.4 per cent.

This morning’s news is a serious relief for chancellor John Healey in his quest to ‘make Great Britain growth Britain again’. With gilt yields continuing to surge to levels not seen for decades and interest rate hikes looking possible later this year, poor growth figures could have wiped out his headroom against the fiscal rules.

Even so, borrowing costs and interest rate expectations have climbed enough that he will likely have to find at least £10 billion in savings or tax rises if he’s to restore headroom back to the level Rachel Reeves left it at.

But in doing so he must be careful not to stop this unexpected growth in its tracks. It has been this government’s MO for any tax rises to fall hardest on businesses. But with the elevated energy costs they already face, the staggeringly high tax burden and sluggish labour market, the last thing businesses need are even more taxes to pay. Given our growth is almost exclusively driven by services, anything that stops consumers spending would be disastrous too.

For now, Britain seems to have bucked the trend our economy has become used to over the past few years of strong performance in the first half of the year followed by a collapse in the second half. But one wrong move from Healey and it won’t be long until normal service is resumed.