UK economy grows by 0.7 per cent as spending on AI and defence staves off cost-of-living slowdown
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UK economic growth accelerated in the third quarter as a spending drive on AI and defence helped stave off a cost-of-living slowdown.
The Office for National Statistics (ONS) published the latest gross domestic product (GDP) figures today.
Growth picked up to 0.7 per cent for the third quarter – between July and September – following growth of 0.5 per cent in the second quarter.
The country's growth has been boosted by business investment, with spending on areas such as technology, infrastructure and defence becoming a key factor.
This is helping to offset the impact of higher energy prices on households and businesses since the start of the Iran war.
Chancellor John Healey said: 'The Middle East conflict has hit growth worldwide, yet Britain is showing standout resilience.
'Our UK economy is growing at the fastest rate in almost ten years, outside the pandemic. We are backing UK investment, innovation and fast growth firms. I want to bring back confidence in Britain.'
Prime Minister Andy Burnham said the data was 'welcome news'.
Chancellor John Healey (left) and PM Andy Burnham at 11 Downing Street on October 26
He added: 'Despite a year where events around the world have pushed up costs here at home, our economy is growing, bringing hope for the future.
'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 AI spending boom was a contributor to higher GDP in July, with the ONS revealing that many of the businesses reporting the largest turnover were involved in activities related to AI and cloud computing.
Sanjay Raja, chief UK economist for Deutsche Bank, said there were a few key sectors that were boosting business investment – data centres and IT, defence and aircraft.
'Consumers have also been out in force, despite the energy shock,' he said. 'And businesses have remained fairly confident regardless of still-elevated geopolitical uncertainty.'
But Mr Raja cautioned that growth is set to slow over the final quarter of 2026 as higher inflation and interest rates begin to weigh.
'Looking ahead, we expect the UK economic growth story to have cooled a bit,' he added.
But he said there had been 'surprisingly resilient' survey data into November and added that pre-Budget uncertainty was kept to a minimum this year, which may have kept business activity more stable.
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