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 and defying predictions of a slowdown made after the Iran war began.
Key Points
- UK GDP third quarter 2026 — gross domestic product grew 0.7% in July to September, up from 0.5% in the second quarter and the strongest calendar-quarter expansion since the first quarter of 2024.
- The annual growth rate picked up to 1.9%, the strongest reading since the fourth quarter of 2024, while GDP per head also rose 0.7%.
- The Office for National Statistics said there was “widespread strength in industries which may be related to artificial intelligence”, though it could not quantify the exact impact.
- The Bank of England last week raised interest rates to 4% and upgraded its growth forecast for 2026, warning inflation will near 5% in 2027.
The figures, published by the Office for National Statistics on Thursday, matched economists’ forecasts in a Reuters poll. September alone was up 0.2%, after August was revised down to no growth. Chancellor John Healey called the figures “standout resilience”. 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 28 October Budget, which did not factor in some of the stronger recent data and upward revisions to past numbers.
The central bank attributed some of the strength to spending on AI and a small, temporary boost from Healey’s fiscal plan. Computer programming was a main driver of growth, with the ONS saying there was evidence that AI and cloud firms helped, though it “cannot quantify the exact impact” — a careful formulation that still marks the first time the statistics office has linked a quarterly growth figure to artificial intelligence.
The pressure behind the good news
The headline masks a more mixed picture. 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 recorded its sharpest month-on-month fall since April 2020, before the October Budget. Higher energy prices and borrowing costs are expected to weigh on activity in the final quarter, and the Bank expects growth to slow to around 0.3% in the final quarter and 0.2% per quarter during 2027.
Stronger growth also strengthens the case for higher interest rates. The Bank raised its rate to 4% from 3.75% last week, the first increase in more than three years, and investors now see a 73% chance of a back-to-back hike in December, with two or possibly three more moves next year. Deputy Governor Clare Lombardelli has signalled that another increase could be needed, and household gas and electricity bills are reportedly expected to rise by around a quarter in January.
The fiscal backdrop remains the argument in Westminster. Andy Haldane, the former Bank of England chief economist, wrote in The Independent on Wednesday that the Budget was so reckless a doctor prescribing it “would probably be struck off”, and warned Britain risks a financial “heart attack”. He said debt interest “will reach over £120bn this year, £14bn more than planned in January”, and that borrowing costs have risen to their highest level in almost two decades. Healey has declined to rule out further tax rises ahead of the next Spending Review, and the National Institute of Economic and Social Research has warned of a potential £30 billion fiscal gap if defence and social care commitments are maintained.
For background on the Budget debate, see our report on UK voters saying Healey’s Budget leaves them worse off, and on the October CPI running hotter than expected in the US. More in our Business section.
Sources: Reuters, “UK economy grows 0.7% in Q3, ONS data shows” (https://www.reuters.com/world/uk/uk-economy-grows-07-q3-ons-data-shows-2026-11-12/); Reuters via Mix929, “AI spending helps lift UK growth to fastest since early 2024” (https://mix929.com/2026/11/12/uk-economy-grows-0-7-in-q3-ons-data-shows/).