UK economy grows at fastest quarterly rate in more than two years

The UK economy has grown at its fastest quarterly rate since the start of 2024 following a boost from tech services and AI.

The Office for National Statistics (ONS) said gross domestic product (GDP) increased by 0.7% in the third quarter, between July and September, up from 0.5% growth in the second quarter.

This was the strongest growth for a calendar quarter since the first three months of 2024.

The third quarter figures include GDP increasing by 0.2% in September – marking an unexpected lift after some economists had been expecting zero growth for the month.

The ONS said it was “almost entirely” fuelled by strength in the UK’s services sector, particularly computer programming, which grew at the fastest rate in three years.

It also pointed to evidence that businesses linked to AI adoption were boosting the sector.

Prime Minister Andy Burnham said the figures were “welcome news”, adding: “Despite a year where events around the world have pushed up costs here at home, our economy is growing, bringing hope for the future.”

Chancellor John Healey said: “The Middle East conflict has hit growth worldwide, yet Britain is showing standout resilience.”

The latest figures showed GDP for the services industry – which spans sectors from hospitality and leisure to professional and financial services, real estate and healthcare – jumped by 0.9% in the third quarter.

It was given a lift by computer programming and consultancy surging by 4.4%, making it the largest driver of GDP growth across 2026.

The ONS said it found that many of the businesses reporting the largest increases in turnover are involved in activities related to AI and cloud computing.

This reflects a wider AI spending boom as many businesses prioritise investing in their tech systems over other areas.

Nearly 100 firms working on AI tools to help boost productivity have been awarded Government funding to boost their projects (Alamy/PA)

Meanwhile, manufacturing activity helped drive growth for the production sector, particularly of computers and electronic items.

On the other hand, the construction sector extended its slump with GDP falling by 0.7% for the third quarter.

Mr Burnham added: “Our job now is to keep focused on what matters to people: bringing down bills, creating good jobs, helping high streets thrive and backing businesses to grow.

“There is more to do, but we have a clear direction. Giving people breathing space now while making the long-term changes needed to deliver good growth in every part of Britain.”

The latest figures show economic growth has accelerated in the face of higher energy prices, which have pushed up inflation and borrowing costs.

Chancellor John Healey said Britain is showing ‘standout resilience’ (PA)

PA Wire

But some economists cautioned that momentum in the economy may start to pull back as these cost pressures weigh on activity.

Scott Gardner, investment strategist at JP Morgan Personal Investing, said: “While the UK economy has been relatively resilient since the conflict started, that strength will be tested in the months ahead.

“Nervousness in the lead up to the autumn Budget and continued uncertainty from the Middle East war is expected to weigh on confidence and activity over the coming GDP readings.”

Matt Swannell, chief economic adviser to the Item Club, said the “rapid increase in AI adoption has supercharged growth in the IT services sector”.

But he also pointed to other industries coming under pressure, saying: “A combination of cooling pay growth and rising inflation will squeeze consumer spending and intensify pressure on consumer-facing parts of the services sector.”