British economic growth accelerated to 0.7% in the third quarter of 2026, matching forecasts and marking the fastest expansion in two and a half years according to data released by the Office for National Statistics.
The July-to-September performance improved upon the 0.5% gross domestic product expansion recorded in the previous quarter and a 0.6% increase in the first quarter, driven largely by a surge in the services sector. The economy grew 1.9% year-on-year in the three months to September, CNBC reported.
The services sector expanded by 0.9% during the third quarter, offsetting a modest 0.1% output growth in the production sector and a 0.7% contraction in construction. Information and communication proved to be a primary catalyst within services, jumping 2.1%.
Artificial intelligence and cloud computing activities heavily influenced this sector expansion.
“This industry has been the largest driver of GDP growth across 2026, with evidence that many of the businesses reporting the largest increases in turnover are involved in activities related to artificial intelligence and cloud computing,” the Office for National Statistics said.
Month-on-month figures also beat expectations. Gross domestic product grew by 0.2% in September, recovering from zero growth in August after revised figures from the Office for National Statistics.
“Our U.K. economy is growing at the fastest rate in almost ten years, outside the pandemic,” said John Healey, Chancellor of the Exchequer. The British pound dropped 0.2% against the U.S. dollar and stayed flat against the euro, while yields on government bonds showed little movement. Scott Gardner, investment strategist at J.P. Morgan Personal Investing, told CNBC that the update delivered a decent set of results while noting that broader economic strength faces upcoming tests.
“Nervousness in the lead up to the Autumn Budget and continued uncertainty from the Middle East war is expected to weigh on confidence and activity over the coming GDP readings,” Gardner told CNBC.
“AI fired up as an extra engine of growth in the quarter, with businesses ramping up investment, including in infrastructure, tech hardware and computer programming, to strengthen their resilience against growing headwinds, while also boosting economic activity,” Thiru said.
The third-quarter data follows the Bank of England’s decision to raise its benchmark interest rate by 25 basis points to 4% on November 5, its first increase since August 2023. Annual inflation reached 3.5% in September, and central bank officials warned it could approach 5% by mid-2027 largely due to elevated energy prices tied to the U.S.-Iran conflict.
Thiru said that the strong economic figures keep another borrowing cost increase possible.
“These robust figures help keep a December interest rate rise firmly on the table by reinforcing policymakers’ view that the economy remains resilient enough to cope with another rise in borrowing costs,” Thiru said.
Markets are pricing in a 73% probability of a rate hike at the final Monetary Policy Committee meeting of the year in December, according to LSEG data.
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