UK economy grows 0.7pc in third quarter on AI-linked services

The UK economy grew by 0.7pc in the third quarter of 2026, the fastest rate since the first three months of 2024, according to the Office for National Statistics (ONS). Growth was 0.5pc in the second quarter and 0.6pc in the first.

The ONS said the expansion was almost entirely down to services. Grant Fitzner, its chief economist, said computer programming grew at its fastest pace in three years and that there was evidence AI-linked businesses had helped lift the sector. September alone saw a 0.2pc rise, according to Aberdeen.

KPMG chief economist Yael Selfin described an economy split between businesses investing heavily in AI and automation and cautious households, who are constrained by higher inflation and interest rates. ING's James Smith pointed to data centre spending and consumer spending that held up better than expected.

The figures came despite an energy price shock linked to the Iran war. Markets reacted positively: the FTSE 100 rose 0.3pc and the FTSE 250 0.2pc by lunchtime. Rolls-Royce gained 1.8pc after reaffirming its full-year forecast and announcing a £1.5bn share buyback.

Economists expect the pace to slow. James Smith said utility bills were almost certain to rise by around 25pc in January, which would put greater pressure on household spending. He expects this to lead the Bank of England to begin cutting interest rates before the end of next year. Aberdeen's Felix Feather said growth should slow meaningfully into 2027 as energy bills squeeze real incomes and tighter monetary policy weighs on activity.

Julian Jessop of the Institute of Economic Affairs called the result a tribute to private sector resilience, achieved "despite rather than because of" government action. He pointed to persistent weakness in construction and said early fourth-quarter surveys showed consumer confidence, retail spending, private sector hiring and housing activity starting to slide.

Former chancellor Rachel Reeves, who lost her job when Andy Burnham became Prime Minister in July, called the figures very welcome. Shadow energy secretary Andrew Bowie said falling construction rates and thousands of layoffs in energy-intensive industries remained unresolved problems, which he blamed on government energy policy.

Separate research from employment firm Right Management, based on a survey of 500 employers, found one in five expect roles in their organisation to be cut or significantly changed over the next year. Rising costs, economic uncertainty and AI were cited as the main drivers. Managing director Tim Gilbert urged employers to consider retraining or redeployment before making cuts.