UK Economy Growth Hits Two-Year High As AI Spending Boosts Services Sector

The UK economy grew by 0.7% between July and September 2026, marking its fastest expansion in more than two years and outperforming expectations despite rising energy costs and geopolitical tensions.

Official figures show that economic growth accelerated compared with the previous three months, highlighting the resilience of businesses and the services sector. However, economists have warned that higher energy bills could weaken consumer confidence and slow growth in the months ahead.

UK Economy Growth Accelerates As Services And AI Investment Drive Expansion

The services sector, which accounts for the largest share of the UK economy, played a major role in the latest growth figures. The sector includes activities ranging from hotels and restaurants to consultancy, computer programming and other professional services.

Computer programming recorded its strongest growth in three years, supported by spending on cloud computing and artificial intelligence-related technologies. Programming and consultancy services have also been the biggest contributors to economic expansion so far this year.

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Grant Fitzner, chief economist at the Office for National Statistics, said growth could have been stronger without the impact of the war in the Middle East. However, he cautioned that households might not immediately feel financially better off, particularly if prices begin rising faster than wages.

UK Economy Growth Draws Positive Response From Government

Prime Minister Andy Burnham welcomed the figures, describing them as encouraging news despite the pressures created by international events.

“Despite a year where events around the world have pushed up costs here at home, our economy is growing, bringing hope for the future,” he said.

Chancellor John Healey also praised the economy's performance, telling the BBC that it had shown “remarkable resilience” amid global conflicts. He expressed hope that the figures would help restore confidence in Britain.

Asked whether government decisions deserved credit when AI investment had been a major driver of growth, Healey said ministers could either “help or hinder” business confidence and investment.

The latest figures put the UK on course to become the second-fastest-growing economy among the major G7 nations, which also include Canada, Japan, Germany, Italy and France.

UK Economy Growth Faces Risks From Rising Energy Prices

Despite the strong quarterly performance, economists have warned that the outlook remains uncertain. Jake Finney, a senior economist at consultancy PwC, said growth was likely to slow in the coming months “unless energy markets stabilise”.

A forecast increase in energy bills in January could put further pressure on household budgets, reducing consumer spending and confidence. Rising energy costs have been linked to conflict in the Middle East and Russia's invasion of Ukraine.

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The conflict involving Iran has disrupted shipping through the Strait of Hormuz, a vital route for global oil and gas supplies. Meanwhile, attacks on oil refineries by Russia and Ukraine have added pressure to global refining capacity, contributing to higher petrol and diesel prices.

UK Economy Growth Shows Business Resilience Despite Uncertainty

Some businesses have reported stronger-than-expected demand despite the uncertain economic environment. Richard Benc, founder of mechanical watch company Studio Underdog, said sales had proved more resilient than anticipated and that the business continued to expect growth this year.

The company exports approximately 80% of its watches, with Benc highlighting continued strength among US customers. However, he said some buyers in the UK were taking longer to make purchasing decisions.

Investment platform AJ Bell's Sarah Coles also pointed to the growing contribution of less visible business activities, including administrative and support services. She said these areas had delivered strong growth since the start of the year, with increasing AI adoption helping to support demand.

While the latest figures offer a positive signal for the UK economy, the durability of the recovery will depend partly on energy prices, business investment and whether growth translates into improved living standards for households.