UK Economy Expands 0.7%, Boosted By AI-Driven Services

(RTTNews) - The UK economy expanded at a faster pace in the third quarter as activities related to artificial intelligence boosted services sector growth.

Real gross domestic product grew 0.7 percent on a quarterly basis, showing an improvement from 0.5 percent expansion posted in the second quarter, preliminary data from the Office for National Statistics revealed Thursday.

A similar strong growth was last reported in the first quarter of 2024. The rate also matched expectations.

The production-side of GDP showed that services activity strengthened further driven by the information and communication and professional services sectors.

Output in the services sector increased 0.9 percent, faster than the 0.6 percent rise seen a quarter ago. Industrial production sector grew 0.1 percent, offsetting last quarter's 0.1 percent fall. Meanwhile, the construction sector contracted 0.7 percent.

On the expenditure side, household consumption rose 0.6 percent supported by increases in transport and housing. Government spending also grew 0.6 percent.

Within gross capital formation, gross fixed capital formation moved up 1.7 percent. At the same time, business investment gained 0.4 percent.

The UK's trade deficit for goods and services was estimated at 1.3 percent of nominal GDP in the third quarter.

On a yearly basis, GDP expanded 1.9 percent in the third quarter, matching expectations.

In September, the economy grew 0.2 percent after showing no growth in August and an unrevised growth of 0.4 percent in July.

"The UK economy has had a remarkable run through 2026 and as of September, there was little sign of that coming to an end," ING economist James Smith said. But he cautioned that rising inflation will likely slow growth through the winter.

Confederation of British Industry Deputy Chief Economist Alpesh Paleja said economic activity held up going into September, and gains over the summer mean that it managed to churn out bumper growth over the third quarter as a whole.

However, the picture is less encouraging when we dig a little deeper, he noted. Firms continue to face a common challenge of high and rising cost of doing business. Another bout of rising inflation will squeeze living standards again, eating into recent gains in resilience, Paleja observed.

British Chambers of Commerce Research Manager Stuart Morrison said the preliminary GDP data confirms a resilient economy weathering global shocks, but noted signs of an emerging two-speed economy beneath the headline figures.

Another ONS data showed that the visible trade deficit widened to GBP 22.3 billion in September from GBP 19.6 billion in August.

The overall trade balance covering goods and services showed a deficit of GBP 5.13 billion compared to a GBP 2.57 billion shortfall in the previous month.