UK Economy Grows 0.7% in Third Quarter, Fastest Pace in Over Two Years on AI Boost

admin · November 12, 2026 · 6 min read

London's financial district skyline with a rising green growth chart and AI circuit graphics, illustrating UK GDP growth of 0.7% in the third quarter of 2026.

Britain’s economy grew 0.7% in the third quarter of 2026, its fastest quarterly pace in two and a half years, as spending on artificial intelligence powered a services-led expansion that defied predictions of a slowdown after the Iran war began.

The Office for National Statistics (ONS) said on Thursday that gross domestic product rose 0.7% in the July-to-September period, up from 0.5% growth in the second quarter and the strongest calendar-quarter expansion since the first quarter of 2024. The figure matched the median forecast in a Reuters poll of economists. On an annual basis, growth picked up to 1.9%, the strongest reading since the fourth quarter of 2024.

AI spending drives the expansion

The ONS said growth was “almost entirely due to strong and widespread growth in the services sector,” according to its chief economist Grant Fitzner. The services industry, which spans hospitality, professional and financial services, real estate and healthcare, grew 0.9% in the quarter.

Computer programming, consultancy and related activity made the largest single contribution to growth, with computer programming alone surging 4.4%, its fastest rate in three years. The ONS said there was “widespread strength in industries which may be related to artificial intelligence,” noting that many of the businesses reporting the largest increases in turnover were involved in AI and cloud computing. Computer manufacturing made the biggest contribution to industrial production, rising 4.6% over the three months to September.

September alone brought a pleasant surprise: output climbed 0.2% on the month, bucking economists’ expectations of no growth at all. “Something is stirring: monthly GDP beat consensus for the fifth straight month and the seventh in eight,” said Rob Wood, chief UK economist at Pantheon Macroeconomics, adding that the data strengthened the chances of another Bank of England rate hike next month.

Second-fastest growth in the G7

Britain’s third-quarter performance was the second-fastest in the Group of Seven advanced economies, just behind the United States. So far this year, UK growth has been the strongest since 2017, excluding the post-pandemic rebound, extending a strong first half in which the economy expanded 0.6% in the first quarter.

The Bank of England last week upgraded its growth projection for 2026 alongside increasing interest rates. The central bank now expects GDP to expand 1.6% this year, much stronger than the 1.2% forecast by the government’s Office for Budget Responsibility after finance minister John Healey’s October 28 budget, which did not factor in some of the recent stronger GDP data and upward revisions to past numbers. The Bank attributed some of the strength to spending on AI and a small, temporary boost from Healey’s fiscal plan.

Prime Minister Andy Burnham and Healey both welcomed the figures, but the strong data are likely to increase pressure on the Bank to raise interest rates again. The central bank warned last week that inflation will near 5% in 2027, and investors now see a 73% chance of a back-to-back hike in December after November’s increase, with two or possibly three more moves next year. “With growth and inflation both strong, we are comfortable expecting at least two more MPC hikes. Today’s figures, at the margin, make a December hike more likely,” Wood said.

Why this matters

The figures matter well beyond Britain. For American readers, the UK data show that the AI investment boom is lifting growth across advanced economies, not just in the United States. The resilience echoes a strong run for global markets: the Dow Jones jumped more than 1,100 points on Monday as oil prices plunged, and AI investment has also been a dominant theme in US markets, where Nvidia’s board has been deliberating the future of its chief executive amid a federal probe. At the same time, the UK numbers underline a shared challenge: US consumer prices rose 0.4% in October, hotter than expected, and Britain now faces the same mix of solid growth and stubborn inflation that could keep interest rates higher for longer on both sides of the Atlantic.

Clouds remain over households

The headline strength hides weaker spots. Business investment grew just 0.4% on the quarter, half of what economists expected in a Reuters poll and the weakest growth since the start of the year. Retail sales volumes fell in September, and consumer confidence suffered its sharpest month-on-month fall since April 2020 in the run-up to the budget.

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

Households also face a fresh squeeze: although a recent fall in oil prices might lower petrol prices, household gas and electricity bills are still set to rise by about 25% when the country’s energy price cap changes in January. The government has offered only limited support to help families absorb the impact of the energy price shock.

Some economists expect slower growth in the final quarter of the year as higher energy prices and borrowing costs weigh on activity. The ONS figures are estimates and could be revised when further data are published.

Frequently asked questions

How fast did the UK economy grow in the third quarter of 2026?

GDP grew 0.7% in the July-to-September period, the fastest quarterly pace in two and a half years and the strongest since the first quarter of 2024, according to the Office for National Statistics.

What drove the growth?

Services led the way, growing 0.9%, with computer programming up 4.4% — its fastest in three years. The ONS pointed to widespread strength in industries related to artificial intelligence and cloud computing.

Will the Bank of England raise interest rates again?

Investors see a 73% chance of another hike in December after November’s increase, and Pantheon Macroeconomics expects at least two more rate rises, with inflation forecast to near 5% in 2027.

How does UK growth compare with other major economies?

Britain’s third-quarter growth was the second-fastest in the G7, just behind the United States, and growth so far this year has been the strongest since 2017, excluding the post-pandemic rebound.

Britain’s economy has now beaten growth forecasts for five consecutive months, giving Prime Minister Andy Burnham’s government an unexpected tailwind. Whether that momentum survives the winter energy squeeze and higher borrowing costs will be decided by the next two quarters of data — and by the Bank of England’s next move in December.

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