Growth beyond forecasts
When John Healey became Chancellor of the Exchequer in July, according to the Guardian, forecasters were in agreement: the resilience of the British economy in the face of the war in the Middle East would not last. Global difficulties were too strong, inflation was beginning to rise and growth would fall to a trickle. Four months later, the newspaper reports, the picture is different: in the third quarter GDP grew by 0.7%, the fastest expansion in two and a half years, making the UK the second-fastest-growing economy in the G7 in 2026.
The figure marks a reversal of the expectations recorded when he took office: a Treasury memorandum indicated that the most optimistic City analyst forecast +0.3%, most a growth close to zero and some did not rule out a move toward recession. Healey, the Guardian writes, maintained a defiant tone, arguing that the country can continue to beat forecasts, but the task, it is observed, is becoming increasingly difficult.
The contribution of AI and the role of services
Underpinning the result are IT and professional services, which together account for about half of the increase in activity, the Guardian writes. ING analysts cited by the newspaper trace the strength of IT to a 'data center story', linked to the UK's position as a leading destination in Europe for investment. Deutsche Bank estimates that AI-related spending added about 0.3-0.4 percentage points to GDP growth this year.
The newspaper links this dynamic to the government's commitment to attracting foreign investment, continuing the work begun by Healey's predecessor, Rachel Reeves. Alongside business investment, household consumption has grown by 1.6% since the start of the year, supported by spending during the hot summer months despite pressure on purchasing power caused by the rise in petrol and diesel prices linked to the war with Iran.
The risks for the two engines of growth
According to the Guardian, both recent engines of British growth now face a more uncertain phase. On the technology front, after the US midterm elections and the revelations about Nvidia, the prospects for the AI investment boom are less clear and financial markets have been shaken by fears that a bubble in the sector's stocks could burst. A slowdown in technology spending could hit the UK, although hopes remain that AI demand will not suddenly dry up.
For households, however, a difficult winter is in prospect: in January energy bills are expected to rise by about a quarter, with the average annual gas and electricity bill set to exceed £2,000. The analysts cited doubt that consumer spending can avoid greater pressure in the new year. The latest data already show early signs: retail sales and discretionary spending fell in September, real wage growth is slowing and headline inflation is expected to approach a new peak close to 5% next year. The resilience of growth, it is noted, could prompt the Bank of England to raise rates to counter imported inflation: City investors expect at least two more quarter-point increases to 4.5% by the end of next year, with a braking effect on the economy and an added burden on the cost of living.
