AI investment and consumer spending both drive growth! UK Q3 GDP growth hits a two-and-a-half-year high.

As the adoption of artificial intelligence (AI) continued to drive corporate and consumer spending growth, while the economy remained resilient amid the energy shock triggered by the Iran war, the UK economy achieved its fastest growth rate in two and a half years. Data released Thursday by the UK Office for National Statistics (ONS) showed that gross domestic product (GDP) grew 0.7% in the third quarter, up from 0.5% growth in the second quarter, marking an acceleration. The figure matched the median estimate of economists. In September alone, UK GDP grew 0.2%, better than the market's prior expectation of zero growth. In September, all major sectors of the UK economy expanded, with manufacturing growing 0.7% and construction expanding 0.8%. Since the outbreak of the Iran war, the UK economy has consistently shown greater-than-expected resilience, with AI adoption-related spending providing a boost to economic growth. UK Chancellor of the Exchequer John Healey said Wednesday that his goal is to once again outperform economic growth forecasts in 2027. Economists have also been raising their forecasts for UK economic growth this year. However, the Bank of England expects quarterly economic growth to slow to 0.3% in the fourth quarter and remain at 0.2% throughout 2027. UK 2026 economic growth forecasts continue to be upgraded The ONS said that services oriented toward businesses drove third-quarter economic growth. Among these, AI adoption drove a 2.1% increase in output in the information and communication industry. Overall, services grew 0.9%. Meanwhile, manufacturing also showed signs of AI-driven growth, expanding 0.9% as well. Within manufacturing, output of computer, electronic and optical products rose 4.6%. Business investment increased 3% year on year. And in the face of another inflation shock, UK households showed little sign of tightening spending consumer spending rose 0.6%, above economists' expectations. Jake Finney, senior economist at PwC, said: "It is important to note that economic growth is still concentrated in a relatively limited number of industries related to AI infrastructure construction. But as AI adoption continues to spread across the economy, we have good reason to believe that by 2027, the benefits of AI may begin to extend to other industries." UK Prime Minister Andy Burnham welcomed the data. In a statement, he said: "Although events around the world over the past year have pushed up domestic costs in the UK, our economy is still growing, offering hope for the future." A series of previously released data also demonstrated the resilience of the UK economy. The UK labor market has also shown signs of stabilizing in the three months to August, the unemployment rate fell to 4.7% from 4.9% previously, and payroll employment rose by 13,000 in September. The October composite Purchasing Managers' Index (PMI) rose to 52.9, an eight-month high, with activity in both manufacturing and services improving. Since the start of this year, UK economic growth has been driven mainly by the technology sector and business services. In the face of rising energy costs and borrowing costs, consumer spending has also held up better than many feared, with households drawing on savings to cushion the shock. The UK government has so far announced only limited support measures to help households withstand the shock. Although recent declines in oil prices may give consumers some relief at the pump, gas and electricity bills are expected to rise by about a quarter when the UK next adjusts its energy price cap in January. The acceleration in economic growth has also increased pressure on the Bank of England to raise interest rates again. On November 5, the Bank of England announced a 25-basis-point increase in the benchmark interest rate to 4%, with the Monetary Policy Committee approving the decision by an 8-to-1 vote. The Bank of England noted that the UK consumer price index (CPI) rose 3.5% year on year in September, and inflation is expected to rise to about 5% by mid-2027 amid persistently high energy prices. At the same time, recent economic activity has been stronger than expected, and the labor market has shown signs of stabilization, increasing the risk that higher energy prices will pass through to broader inflation. Investors currently lean toward expecting the bank to raise rates again in December.