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Finance

UK economy grows 0.7% in third quarter as AI boom powers services

Two construction workers wearing helmets and safety gear are standing in an industrial environment, appearing engaged in conversation. The background features machinery and equipme — Credit: Courtesy of Anglo American
Courtesy of Anglo American

Britain's economy grew 0.7% between July and September, in line with forecasts and the fastest quarterly pace this year.

The Office for National Statistics (ONS) said gross domestic product (GDP), the broadest measure of economic output, accelerated from 0.5% growth in the second quarter.

The economy was 1.9% bigger than a year earlier, also matching expectations.

September provided a modest surprise, with output rising 0.2% against City forecasts of no growth.

August was revised down to zero growth from 0.1%, while July's 0.4% expansion was unchanged.

Tech drives services

Services, which account for the bulk of economic activity, grew 0.9% over the quarter.

Business-facing services rose 1.0%, outpacing the 0.5% gain in consumer-facing businesses such as shops and restaurants.

Information and communication grew 2.1%, led by a 4.4% jump in computer programming and consultancy.

The ONS said the industry has been the biggest driver of growth this year, with many fast-growing firms linked to artificial intelligence (AI) and cloud computing.

Production edged up 0.1%, as 0.9% manufacturing growth offset falls in mining, energy and water.

Construction shrank 0.7%, dragged down by a 4.7% slump in private housebuilding.

Investment climbs

Household spending rose 0.6%, while gross fixed capital formation, a measure of investment in assets such as machinery and buildings, jumped 1.7%.

Real GDP per head, a rough gauge of living standards, also rose 0.7%.

Among G7 economies that have reported, only the US grew faster, at 0.8%.

The figures come a week after the Bank of England raised interest rates for the first time in more than three years.

Forecasters expect growth to cool to around 0.2% in the final quarter as higher energy costs squeeze households.