The UK economy grew by 0.7% in the third quarter of the year, its fastest pace in more than two years, as investment in artificial intelligence helped offset the impact of the war between the US and Iran.
Figures from the Office for National Statistics showed growth in the three months to September was up from 0.5% in the previous quarter, and in line with economists’ expectations. The economy was 1.9% larger than a year earlier.
The figure was more than double the 0.3% pencilled in by the Office for Budget Responsibility at the Budget three weeks ago. Outside the pandemic, quarterly growth has not been faster since 2017.
The services sector grew 0.9%, more than making up for weak production, which grew 0.1%, and a 0.7% fall in construction.
Information and communication grew 2.1% in the quarter. The ONS said it had been “the largest driver of GDP growth across 2026”, with many of the businesses reporting the biggest rises in turnover involved in AI and cloud computing, though it said the exact impact was hard to measure. By one estimate, AI-related demand has accounted for just under a fifth of UK growth since the start of the year.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, called it “a strikingly strong third quarter”. “AI fired up as an extra engine of growth in the quarter,” he said, with businesses investing in infrastructure, tech hardware and computer programming.
The economy grew 0.2% in September alone, beating expectations of no growth, after a flat August.
Chancellor John Healey said the figures showed “stand-out resilience” despite the war hitting growth around the world. “Our UK economy is growing at the fastest rate in almost ten years, outside the pandemic,” he said.
Prime Minister Andy Burnham said the growth was “bringing hope for the future”. Healey has said that a settlement of the conflict in the Gulf would be the “best economic policy”.
On these figures, the UK is on course to be the second-fastest-growing economy in the G7 this year, behind only the US, according to one analysis.
The strong figures make another interest rate rise more likely. Last week the Bank of England raised rates to 4%, its first increase in more than three years, and warned there could be more rises without an end to the war.
Inflation reached 3.5% in September, and the Bank has warned it could rise to around 5% by the middle of 2027. In its latest report, it said growth had been “more resilient than expected” but would slow in the final quarter and into next year.
Thiru said the figures kept a December rate rise “firmly on the table” by reinforcing the view that the economy could cope with higher borrowing costs. Markets are pricing in a 73% chance of a rise at the Bank’s final meeting of the year.
The pound fell 0.2% against the dollar on Thursday morning, and UK government borrowing costs were little changed.
The boost may not last. Scott Gardner, investment strategist at J.P. Morgan Personal Investing, called it a “decent set of results” but said nervousness before the Budget and uncertainty over the war were expected to weigh on the next readings. “The UK economy still faces several headwinds,” he said.
Consumer confidence has already fallen as petrol and household energy prices start to rise again, and construction and housebuilding remain weak. Some economists also warn that the AI investment boom could reverse.
Much depends on the conflict in the Gulf. Some oil and gas production there is starting to return to normal, which could bring down petrol prices, energy bills and mortgage costs if it continues.