The UK economy expanded 0.7 per cent between July and September 2026, the Office for National Statistics said, beating expectations as an AI-driven surge in business investment offset an energy price spike triggered by the Iran war.

Monthly figures strengthened the picture. The economy grew 0.2 per cent in September alone, against consensus projections of zero growth, according to the ONS first quarterly estimate published for the third quarter.

Which sectors drove the 0.7 per cent expansion?

The services sector (the part of the economy covering everything from finance to programming, excluding manufacturing and construction) grew 0.9 per cent across the three months. Production expanded 0.1 per cent. Construction fell 0.7 per cent over the same period.

Grant Fitzner, chief economist at the ONS, said: "The economy grew robustly in the third quarter almost entirely due to strong and widespread growth in the services sector."

Fitzner pinpointed technology as the standout. "Within services, computer programming again increased strongly, as it has all year, registering its fastest growth in the last three years. We continue to see evidence that AI-linked businesses helped to boost this sector," he said.

How much of UK growth is AI responsible for?

The Bank of England indicated last week that about a fifth of UK growth was driven by AI-related investment. Independent estimates by Bloomberg Economics reached a similar conclusion, attributing roughly a fifth of the GDP expansion to AI.

The figures reflect a year of relative resilience. Economists had repeatedly warned that higher international oil and gas prices stemming from Middle East conflicts would dampen activity, yet household and business spending held up through the third quarter.

Is growth slowing despite the strong quarter?

The quarterly data shows a gradual deceleration across 2026. Growth reached 0.6 per cent in the first quarter and 0.5 per cent in the second, before rebounding to 0.7 per cent in the third.

Even so, full-year performance will far exceed forecasts made in 2025, when economists predicted GDP improvement of as low as below one per cent. Lord Jim O'Neill, the former Goldman Sachs executive and close ally of Andy Burnham, recently said annualised growth was closer to two per cent and suggested markets could be off the mark in their assumptions about the UK economy.

The stronger backdrop also carries political weight for Chancellor John Healey, who could benefit from a growing economy heading into the autumn.

What do forecasters expect for 2027?

Forward-looking estimates diverge sharply. The Office for Budget Responsibility, the government's independent fiscal watchdog, suggested the effects of the energy price spike from Middle East conflicts will bite next year, dragging growth down to one per cent in 2027.

On Wednesday, the National Institute of Economic and Social Research offered a marginally brighter view, pencilling in 1.1 per cent growth for next year.

The spread between the OBR and NIESR projections of just 0.1 percentage points masks a wider disagreement among forecasters, who have produced dramatically different figures for 2027 as they weigh the durability of AI investment against the delayed drag from energy costs. For now, the third-quarter data confirms that artificial intelligence-linked spending has become a measurable engine of UK growth, contributing roughly a fifth of expansion according to both the Bank of England and Bloomberg Economics.