GDP ‘grew robustly’ by 0.7% in third quarter and by 0.2% month on month in September despite high oil prices
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The UK economy grew by 0.7% in the third quarter, its fastest expansion in two and a half years, as the rollout of AI services increased activity.
The Office for National Statistics reported that the economy “grew robustly” in the July to September quarter, almost entirely due to strong and widespread growth in the services sector, led by the IT sector.
The quarterly growth rate matched economists’ expectations, and was the fastest recorded since the first three months of 2024, when GDP also rose by 0.7%.
In a boost to the chancellor, John Healey, the ONS also said the economy grew by 0.2% in September, though the ONS revised down the growth rate in August from 0.1% to zero. September’s data beat forecasts of zero growth in the month.
The UK’s information and communication sector grew by 2.1% in the quarter, mainly driven by increases in computer programming, consultancy and related activities. This industry has been the largest driver of GDP growth across 2026, the ONS reported, adding that the businesses related to AI and cloud computing have been reporting the largest increases in turnover.
Sarah Coles, the head of personal finance at the investment platform AJ Bell, said AI continued to do “a significant portion of the heavy lifting” in the last quarter.
“Since the start of the year, it’s the less visible back-office work that has delivered, with administrative and supportive services seeing strong growth. These areas are benefiting from the increasing adoption of AI,” Coles said.
Healey said the UK was showing “standout resilience”.
The chancellor added that the economy was growing at the fastest rate in almost 10 years, excluding the time of the Covid-19 pandemic – when lockdown restrictions distorted economic growth.
“GDP is up 1.8% so far this year, and pushing at an annualised pace of just above 2.5% – marking the best first three quarters since the pandemic rebound. Strip out the pandemic years and you have to go back to 2017 to find the economy running this hot,” Sanjay Raja, the chief UK economist at Deutsche Bank, said.
“Compared to its G7 peers, the UK has relinquished its title as the fastest-growing economy this year to the US, but only just,” Raja added.
The services sector proved to be the most important engine of growth over the third quarter of 2026, rising by 0.9%. There was also a positive contribution from the production sector, which grew by 0.1%. It was a sharp drop in construction that dragged down economic growth, even though it only accounts for about 6% of economic activity.
Construction work on new projects has fallen more than 7% from mid-2025 while private housebuilding has fallen 30% from its 2022 high.
Suren Thiru, the chief economist at the accountancy body ICAEW, said the figures confirmed a “strikingly strong” third quarter as the UK remained resilient to the economic fallout from US-Iran hostilities”.
He said it was becoming clear that investments in artificial intelligence were driving the expansion of services sector activity.
“The third quarter showcased the continued resilience of households and firms. Businesses ramped up investment amid an AI boom, while stronger consumer spending suggests households continued to draw on savings to support consumption despite rising inflation,” he added.
James Smith, an economist at ING, said much of the rise in investment and growth can be traced back to IT and professional services – sectors that have grown rapidly this year despite shedding staff.
“IT is very clearly a datacentre story,” he said. “The UK is one of the leading destinations for investment in Europe. And while output here actually fell through August and September, we expect this to remain an area of outperformance in 2027.”
The Office for Budget Responsibility said at the time of the budget at the end of October that it expected the economy to expand by 1.2% this year, which already looks out of date as growth continues to exceed expectations.
Policymakers at the Bank of England voted last week to raise interest rates by a quarter of a percentage point to 4% to cool inflationary pressures in the economy.
Inflation has risen this year mostly in response to higher motor fuel prices, which in the UK have pushed the cost of petrol above £1.70 a litre and diesel towards an average of £2 a litre.
The ONS said wholesale electricity prices were about double the level of a year ago.
“Automotive fuel prices also remained elevated following increases in recent months, reflecting continued pressures in global energy markets,” it added.
Analysts said the strength of the economy could persuade the Bank of England to raise rates when policymakers meet again in December.
“These robust figures help keep a December interest rate rise firmly on the table by reinforcing policymakers’ view that the economy remains resilient enough to cope with another rise in borrowing costs,” Thiru said.
The National Institute of Economic and Social Research went further and urged the central bank to raise rates.
Further rate rises are needed to keep inflation contained and protect the economy from a costlier correction later,” said Fergus Jimenez-England, an economist at the institute.
Other analysts were more sceptical that the momentum could be sustained into the new year.
Simon Pittaway, an economist at the Resolution Foundation, a thinktank, said the UK’s resilience “will be severely tested” over the coming months by rising inflation and interest rates.
Unions said a rise in energy bills in the new year could put a break on household spending, which had played a significant part in boosting growth this year.
TUC general secretary Paul Nowak said: “Despite the good news, working people across the country are still up against it today as they face spiralling energy bills as a result of Trump’s illegal war in Iran.”
