Official data released on 12 November showed the UK economy expanded by 0.7% in the three months to September, the fastest pace in more than two years and an acceleration from the previous quarter. The performance points to a more resilient summer than forecast, even as higher energy prices linked to conflict in the Middle East weighed on households and businesses.
The Office for National Statistics said services, the largest part of the economy, powered the increase. The sector covers non-physical output such as consultancy and computer programming as well as hotels and restaurants. Computer programming recorded its fastest growth in three years, supported by spending on cloud computing and artificial intelligence. Consultancy and computer programming have together been the biggest contributors to growth so far this year.
Grant Fitzner, chief economist at the ONS, said growth “could have been even stronger” without the war in the Middle East. He added that households may still not feel better off, and warned that prices could soon begin rising faster than wages.
Prime Minister Andy Burnham called the figures “welcome news.” He said: “Despite a year where events around the world have pushed up costs here at home, our economy is growing, bringing hope for the future.” Chancellor John Healey described “remarkable resilience” in the face of global conflicts and said he hoped the data would “bring back confidence in Britain.” Asked whether government decisions deserved credit when AI investment has been a main driver, Healey said ministers can always “help or hinder” business confidence and investment.
Investors have recently worried about slower artificial intelligence development in the United States and the long-term viability of AI companies’ business models, yet businesses have continued to put money into the technology. Sarah Coles of investment platform AJ Bell said that since the start of the year “it’s the less visible back-office work that has delivered, with administrative and supportive services seeing strong growth.” Those are areas benefiting from greater use of AI, she noted.
The figures leave the UK on course to be the second-fastest-growing economy among the G7, which also includes Canada, Japan, Germany, Italy and France. Jake Finney, senior economist at consultancy PwC, cautioned that growth is likely to slow in the coming months “unless energy markets stabilise.” A sharp rise in energy bills is forecast for January, which he said is likely to hit consumer spending and confidence.
High energy costs have been driven by the continuing conflict in the Middle East and Russia’s invasion of Ukraine. US and Israeli attacks led Iran to block the Strait of Hormuz, a vital shipping route for the world’s oil and gas. Russia and Ukraine have also been attacking each other’s oil refineries, squeezing global refining capacity and pushing up diesel and petrol prices.
Some businesses report stronger trading than they had expected. Richard Benc, founder of mechanical watch company Studio Underdog, said sales have held up better than forecast. “We’ve seen more resilience than we had forecast for and expected. We are still projecting growth this year,” he said. The company exports about 80% of its watches, and Benc added that resilience has been particularly noticeable among US customers, although some UK customers are now taking longer to buy watches.