UK Economy Grows 0.7% in Q3 as AI Spending Offsets Energy Shock

what happened

Britain's economy expanded 0.7% in the third quarter compared with the previous three months, the national statistics office said Thursday, according to Dow Jones Newswires. That was the fastest pace since early 2024 and pushed back against forecasts for a slowdown caused by the conflict between the United States and Iran, which has lifted energy costs and borrowing rates.

Services output rose 0.9%, led by business services such as IT, computer programming and manufacturing, a pattern the Bank of England links to artificial intelligence. The central bank estimates AI-related demand has made up almost one-fifth of growth so far in 2026.

Consumer spending also firmed, with retail volumes up 0.7% helped by mild weather and a rebound in fuel sales. Even so, the Bank of England raised rates last week for the first time since the war began and signaled another increase may come in the coming months.

why it matters

Strong data reduces the chance of a pause in the tightening cycle, which supports sterling and keeps gilt yields under upward pressure. Markets will watch the December policy decision closely, while weaker household sentiment and higher energy bills due in January point to a more cautious backdrop for consumers.

market impact

GBP/USD and gilts: stronger growth keeps another BoE hike in play, supporting sterling and pressuring bond prices

• ▲GBP/USD pressure up — stronger growth keeps expectations of another Bank of England rate hike alive
• ▼UK gilts pressure down — higher rate expectations push yields up and bond prices down

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