UK economy ‘defies doomsayers’ after GDP grows over summer driven by boom in roll-out of AI

Growth of artificial intelligence helps power stronger-than-forecast growth in the UK economy in the third quarter of this year, with other sectors doing well including car dealers, accountancy and recruitment agencies

The UK economy has defied doomsayers again by growing by 0.7% over the summer, official data has confirmed.

Chancellor John Healey said the results showed the country was showing “standout resilience” and growing at the fastest rate in almost a decade. The latest data for the third quarter – July to September – comes on the back of stronger-than-forecast growth in the first half of 2026. Growth in September alone was 0.2%.

Sanjay Raja, chief UK economist at Deutsche Bank, said the UK economy was in “top gear”.

However, experts warned the “fly in the ointment” for millions of borrowers was it made another Bank of England rake hike more likely. The Bank, which upped its base rate to 4% earlier this month, is tasked with cooling inflation but would be wary of unleashing another hike if the economy was weak.

The Office for National Statistics said the 0.7% growth in the UK’s gross domestic product was almost entirely due to what is termed the service sector, which makes up the bulk of the economy and includes everything from banks to pubs. But drilling into the data revealed that the UK’s IT industry was the main driver, helped by the rapid roll-out of AI technology.

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Others doing well included car dealers, accountancy and recruitment agencies, the last of which adding to evidence that the UK’s jobs market is holding up better than many economists expected. GDP has now grown by 1.9% over the first nine months of the year, putting the UK on track to be the second-fastest growing economy in the G7 group of countries, just behind the US at 2%.

Professor Joe Nellis , head of economic research at accountancy and advisory firm. MHA, said “UK economy continues to defy doomsayers but the road ahead is bleak.”

However, the resilience of the economy will be “severely tested” over the coming months by rising inflation and interest rates. the government was warned. Prime Minister Andy Burnham said: “Despite a year where events around the world have pushed up costs here at home, our economy is growing, bringing hope for the future.

“Our job now is to keep focused on what matters to people: bringing down bills, creating good jobs, helping high streets thrive and backing businesses to grow. There is more to do, but we have a clear direction.”

Chancellor John Healey said: “The Middle East conflict has hit growth worldwide, yet Britain is showing standout resilience. Our UK economy is growing at the fastest rate in almost 10 years, outside the pandemic. We are backing UK investment, innovation and fast growth firms. I want to bring back confidence in Britain.”

TUC General Secretary Paul Nowak said: “It’s great that our economy strengthened further over the summer. This faster growth is a vital foundation for creating jobs and rising living standards. But despite this good news, working people across the country are still up against it today as they face spiralling energy bills as a result of Trump’s illegal was in Iran.

“So the Chancellor was right to tax banks’ enormous profits to support families – £100 for most households this January will help cover eye-watering energy costs. After this, more support will still be needed – the next steps should be a social tariff to give low- and middle-income families permanent help with their energy bills.”

Simon Pittaway, senior economist at think tank the Resolution Foundation, said: “The UK’s strong economic performance has continued into the second half of the year, which is all the more impressive given the ongoing disruption caused by conflict in the Middle East. But with inflation and interest rates both forecast to rise towards 5 %, this resilience will be severely tested in the coming months.

“Stepping back, the good news is that the UK looks to be breaking free of its reputation as a stagnation nation. The less positive news is that stronger economic growth is yet to translate into big living standards gains.”

Samuel Fuller, director of Financial Markets Online, said: “If retailers deliver a strong ‘golden quarter’ in the run-up to Christmas, growth for 2026 as a whole should easily surpass the Bank of England’s 1.6% forecast.

“This is the fly in the ointment for anyone thinking of moving home, or the hundreds of thousands due to remortgage in coming months, because it opens the door to higher interest rates.”