The UK economy grew by 0.7 per cent between July and September, the Office for National Statistics said, marking the strongest quarterly expansion since the first three months of 2024. The growth was driven by a robust performance in the services sector, particularly computer programming, with businesses linked to artificial intelligence adoption boosting the sector. Analysts warned that higher energy prices and interest rates could weigh on momentum, while the British Chambers of Commerce pointed to a two-speed economy.
The ONS reported that the economy "grew robustly" in the quarter, almost entirely due to strength in the services sector, which rose by 0.9 per cent. Within this, the information and communication sector grew by 2.1 per cent, with computer programming registering its fastest growth in three years. Grant Fitzner, the ONS's chief economist, said growth might have been even stronger if not for the conflict in the Middle East, but noted that households may not feel better off, as inflation and wages have a more direct impact on personal finances.
Oil prices had dropped in recent days after rising above $100 a barrel in September and remaining above that threshold until earlier this month. Wholesale electricity prices were about double the level of a year ago. Inflation has risen this year mostly in response to higher motor fuel prices. The Bank of England voted last week to raise interest rates by a quarter of a percentage point to 4 per cent to cool inflationary pressures. The UK is on course to be the second fastest growing economy in the G7 this year.
Prime Minister Andy Burnham called the figures "welcome news", saying the economy was "bringing hope for the future" despite a year in which global events have pushed up domestic costs. Chancellor John Healey said the UK was showing "standout resilience" and that the economy was growing at the fastest rate in almost ten years, excluding the pandemic period.
However, the British Chambers of Commerce pointed to signs of an emerging two-speed economy. Research manager Stuart Morrison said that while investment by larger firms and sectors was driving growth, for the vast majority of SMEs, investment is flat. He noted that just 17 per cent of firms expect to increase investment in the coming months, a post-pandemic low.
Trades Union Congress general secretary Paul Nowak said that despite the good news, working people were still facing spiralling energy bills as a result of Trump's illegal war in Iran. KPMG chief economist Yael Selfin expected the economy to lose momentum in the fourth quarter and broadly flatline as higher energy prices and interest rates dampen consumer demand. Simon Pittaway, an economist at the Resolution Foundation, said the UK’s resilience would be severely tested over the coming months by rising inflation and interest rates.
Analysts said the strength of the economy could persuade the Bank of England to raise rates again as soon as December. Suren Thiru, chief economist at ICAEW, said the figures “help keep a December interest rate rise firmly on the table”. The National Institute of Economic and Social Research urged the central bank to act, arguing further rate rises are needed to contain inflation.
The production sector contributed a positive 0.1 per cent, but a sharp drop in construction dragged down the headline figure. Construction work on new projects has fallen more than 7 per cent from mid-2025, while private housebuilding has fallen 30 per cent from its 2022 high.
Analysis
Why This Matters
- Household Finances: Despite strong headline growth, rising energy bills and inflation mean many households are unlikely to feel the benefit, with consumer spending under renewed pressure.
- Interest Rate Outlook: The resilient growth data keeps a December interest rate hike firmly on the table, which could further squeeze borrowing costs for businesses and homeowners.
- Two-Speed Economy: The growth is heavily concentrated in large firms and the AI-driven tech sector, leaving a vast majority of SMEs with flat investment, raising questions about the breadth of the recovery.
Background
The UK economy has faced sustained headwinds from high global energy prices, largely tied to geopolitical instability including the US-Iran conflict. The Bank of England raised interest rates to 4 per cent in November to combat inflation driven by higher fuel costs. The latest ONS figures show GDP grew 1.8 per cent in the first three quarters of the year, making the UK the second-fastest growing economy among G7 nations behind the United States.
Key Perspectives
Government (Andy Burnham / John Healey): Welcomed the figures as evidence of "standout resilience" and the fastest growth in almost a decade, attributing it to backing UK investment and innovation.
British Chambers of Commerce: Warned of a "two-speed economy" where large firms and AI sectors boom while small and medium enterprises see flat investment and struggle with hiring, exports, and the cost of doing business.
Trades Union Congress: Acknowledged the positive headline but stressed that working people are suffering from rising bills linked to the Iran conflict, with energy prices set to rise again in January.
Analysts (ICAEW, KPMG, PwC, Resolution Foundation): Broadly concurred that the growth is fragile and momentum is likely to fade in Q4 due to rising energy costs, inflation, and the lagged effect of higher interest rates. They view a further rate rise in December as probable.
What to Watch
- Bank of England Decision (December): Whether the Monetary Policy Committee votes to raise rates further or holds given emerging signs of a slowdown.
- January Energy Bills: The impact of the forecast leap in the energy price cap on consumer spending and confidence.
- SME Investment Data: Whether government policy shifts to support small business investment, or the trend of 17 per cent of firms expecting to invest continues to flatline.
Checked
12 claims in this story checked against 3 sources: 12 supported.
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- SupportedThe UK economy grew by 0.7% in the third quarter, its fastest expansion in two and a half years.Business | The Guardian: “The UK economy grew by 0.7% in the third quarter, its fastest expansion in two and a half years”
- SupportedThe strongest quarterly growth was since the first three months of 2024.The Independent UK: “This was the strongest growth for a calendar quarter since the first three months of 2024”
- SupportedAI-related activity boosted the services sector, particularly computer programming.The Independent UK: “The ONS said it was “almost entirely” fuelled by strength in the UK’s services sector, particularly computer programming, which grew at the fastest rate in three years. It also pointed to evidence that businesses linked to AI adoption were boosting the sector.”
- SupportedThe ONS said the economy “grew robustly”.Business | The Guardian: “The Office for National Statistics reported that the economy “grew robustly” in the July to September quarter”
- SupportedThe services sector grew by 0.9% in the quarter.Business | The Guardian: “The services sector proved to be the most important engine of growth over the third quarter of 2026, rising by 0.9%.”
- SupportedThe information and communication sector grew by 2.1% in the quarter.Business | The Guardian: “The UK’s information and communication sector grew by 2.1% in the quarter”
- SupportedComputer programming recorded its fastest growth in three years.BBC News: “Within services, computer programming registered its fastest growth for the past three years, helped by AI linked spending.”
- SupportedGrant Fitzner said growth might have been stronger without the conflict in the Middle East.BBC News: “Grant Fitzner, chief economist at the Office for National Statistics, said it was "possible growth could have been even stronger" if there hadn't been a war in the Middle East.”
- SupportedThe Bank of England voted last week to raise interest rates by 0.25 percentage points to 4%.Business | The Guardian: “Policymakers at the Bank of England voted last week to raise interest rates by a quarter of a percentage point to 4%”
- SupportedThe UK was on course to be the second-fastest-growing economy in the G7 that year.BBC News: “The latest figures put the UK on course to be the second fastest growing economy across the major G7 countries”
- SupportedThe BCC said 17% of firms expected to increase investment in the coming months, a post-pandemic low.The Independent UK: “Our latest survey shows just 17 per cent of firms expect to increase invest in the coming months, unchanged on the quarter and a post-pandemic low.”
- SupportedConstruction work on new projects had fallen more than 7% from mid-2025, while private housebuilding had fallen 30% from its 2022 high.Business | The Guardian: “Construction work on new projects has fallen more than 7% from mid-2025 while private housebuilding has fallen 30% from its 2022 high.”