UK economy grows 0.7% in the third quarter, its fastest pace in more than two years, helped by AI spending

Britain's economy grew at its fastest rate in two-and-a-half years in the third quarter of 2026, helped by investment in artificial intelligence, extending a strong first half of the year and defying predictions of a slowdown made after the Iran war began.

Gross domestic product grew 0.7% in the July-to-September period, up from growth of 0.5% in the second quarter and the strongest calendar-quarter expansion since the first quarter of 2024, the Office for National Statistics (ONS) said on Thursday.

The annual growth rate picked up to 1.9% in the third quarter, the strongest reading since the fourth quarter of 2024, while on a rolling three-month basis growth was the fastest since May. The figures were stronger than the Bank of England had expected: the central bank had forecast growth of 0.4% for the quarter.

Growth was, in the words of the ONS, "almost entirely" fuelled by strength in the services sector, particularly computer programming, which grew at its fastest rate in three years. The ONS said there was "widespread strength in industries which may be related to artificial intelligence", as businesses spent on AI and cloud computing.

ONS chief economist Grant Fitzner said growth was "almost entirely due to strong and widespread growth in the services sector", which spans hospitality and professional services, real estate, healthcare and financial services. Monthly output also rose by 0.2% in September, beating forecasts of flat growth for the month.

The performance puts Britain second among the Group of Seven advanced economies for growth in the third quarter, just behind the United States. So far this year, British growth has been the strongest since 2017, excluding the post-pandemic rebound — a striking result given the headwinds the economy has faced.

Those headwinds remain considerable. Oil prices have been running at $90 to $100 a barrel, the Bank of England raised interest rates to 4% earlier this month in its first increase since 2023, and the war in the Middle East has disrupted trade and shipping. The ONS figures suggest the economy has so far absorbed those shocks better than many economists expected.

There were softer notes inside the release. Business investment grew just 0.4% on the quarter, half of what economists polled by Reuters had expected and the weakest growth since the start of the year. The Bank of England now expects GDP to expand by 1.6% this year as a whole.

The government seized on the figures. John Healey said the UK was "showing stand-out resilience. Our economy is growing at the fastest rate in almost ten years, outside the pandemic." Ministers will hope the momentum continues into the final quarter of the year.

Whether it does will depend on whether the AI-driven strength in services can be sustained and whether business investment recovers. The ONS figures are estimates and could be revised as more data arrives, but for now they tell a story few forecasters predicted at the start of the year: an economy growing at its fastest pace in more than two years, led by the technology that is reshaping it.