UK Economy Grows 0.7% in Third Quarter as AI Adds Growth

The UK economy expanded 0.7% in the third quarter of 2026, matching the 0.7% growth forecast by economists polled by Reuters, according to CNBC. Gross domestic product rose 1.9% year on year in the three months to September, the Office for National Statistics (ONS) said on Thursday.

The quarterly pace improved on 0.5% in the second quarter and 0.6% in the first, CNBC reported. The ONS national accounts data showed services output expanding 0.9%, a gain that outweighed 0.1% growth in production and a 0.7% fall in construction.

Also read: UK inflation climbs to 3.5% as fuel prices drive September rise

Key facts

• Third-quarter GDP grew 0.7% on the quarter and 1.9% on the year, the ONS said.
• Services rose 0.9%; production grew 0.1%; construction contracted 0.7%.
• Information and communication expanded 2.1% in the quarter, the ONS’s standout service industry.
• September GDP rose 0.2% month on month, while August was revised down to zero growth, The Guardian reported.
• Oil rose above $100 a barrel in September and stayed there until earlier this month, pushing UK petrol above £1.70 a litre, per The Guardian.

AI activity sits behind the headline number

The ONS said information and communication has been the single largest contributor to GDP growth across 2026, with evidence that many of the firms posting the biggest turnover increases work in artificial intelligence and cloud computing. The statistics agency cautioned that its data collection does not allow it to quantify how much of that turnover AI-related activity accounts for.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said AI acted as an additional growth engine as companies raised spending on infrastructure, tech hardware and computer programming to guard against headwinds.

Also read: Warsh Won't Signal October Fed Move as Markets Price a Hold

Oil, rates and the political response

Finance minister John Healey said the country had shown “stand-out resilience” while the US-Iran war weighed on growth worldwide, and that the economy was expanding at its fastest pace in almost ten years outside the pandemic. Prime Minister Andy Burnham said the third-quarter figures brought “hope for the future.”

The Guardian reported that the ONS linked the price of oil and gas after the re-escalation of the Middle East conflict to the quarter’s restraint on growth, with natural gas costing roughly three times its February level before the US and Israel attacked Iran.

The Bank of England lifted interest rates by a quarter point to 4% the previous week, its first increase in three years, warning of further hikes if the war is unresolved. Annual inflation reached 3.5% in September, and the central bank said it could approach 5% by mid-2027. It described GDP growth as more resilient than expected but projected a slowdown in the fourth quarter and into 2027; LSEG data put a 73% probability on another hike at the December meeting.

Scott Gardner, investment strategist at J.P. Morgan Personal Investing, said the economy has held up since the war began but that nerves before the Autumn Budget and Middle East uncertainty should weigh on confidence in coming readings.

Why it matters

The print supports the Bank of England’s case that the economy can absorb tighter policy, keeping a December move in play and feeding through to mortgage and business borrowing costs. It also puts pressure on official growth projections: The Guardian noted the Office for Budget Responsibility’s November forecast of 1.2% growth for the year already looks outdated as output runs ahead of expectations. Politically, the data gives Healey’s Treasury a stronger hand going into the Budget.

What to watch

The immediate tests are the Autumn Budget, the Bank of England’s December meeting and the next monthly GDP release, which will show whether the fourth-quarter slowdown the central bank projected has begun.

This article reports economic data and is not financial advice; markets and interest rate expectations are volatile and can change quickly.

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Sources: CNBC, The Guardian