UK Economy Grows 0.7% in Third Quarter, Fastest Pace in More Than Two Years

Britain’s economy grew 0.7% in the third quarter, its fastest quarterly pace in more than two years, official figures showed on Thursday, helped by spending on artificial intelligence.

Gross domestic product rose 0.7% in the July-to-September period, the Office for National Statistics said, up from 0.5% in the second quarter and the strongest calendar-quarter growth since the first quarter of 2024. The annual growth rate picked up to 1.9%, the strongest reading since the fourth quarter of 2024. Both figures matched the median forecast in a Reuters poll of economists.

Services and software drove the gain

Growth came almost entirely from the services sector. The ONS said there was widespread strength in industries that may be related to artificial intelligence, and computer programming, consultancy and related activity made the largest single contribution to growth in the quarter. Computer manufacturing made the biggest contribution to industrial production, rising 4.6% in the three months to September.

Output rose 0.2% in September alone, against expectations of no growth, and monthly GDP has now beaten the consensus forecast for five straight months. “Something is stirring: monthly GDP beat consensus for the fifth straight month and the seventh in eight,” Rob Wood, chief UK economist at Pantheon Macroeconomics, said.

Growth in the third quarter was the second-fastest in the Group of Seven advanced economies, behind only the United States, according to Reuters. So far this year, British growth has been the strongest since 2017, excluding the post-pandemic rebound.

Rates and prices cloud the outlook

Chancellor John Healey said the figures showed “stand-out resilience” and that the economy was growing at the fastest rate in almost 10 years outside the pandemic. Prime Minister Andy Burnham also welcomed the figures.

The Bank of England 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 Healey’s October 28 budget. The Bank of England raised interest rates to 4% last week, and investors see a 73% chance of another rise in December. The central bank warned last week that inflation will near 5% in 2027.

Economists expect growth to slow in the final three months of the year. Business investment grew just 0.4% in the quarter, the weakest since the start of the year, retail sales volumes fell in September, and household gas and electricity bills are set to rise by about 25% when the energy price cap changes in January.

Reporting based on coverage by Reuters and The Times.