AI Powers UK Economic Growth In Third Quarter

Britain’s economy expanded 0.7 percent in the third quarter, official data showed Thursday, as spending on the AI boom helped offset higher energy prices and other disruptions caused by the US-Iran war.

The July-September reading for gross domestic product was an acceleration from 0.5 percent growth in the second quarter, the Office for National Statistics said in a statement.

The third-quarter figure, in line with market expectations, was the fastest quarterly growth rate since the first three months of 2024, the ONS said.

It said the latest growth was driven by strength of the services sector, particularly computer programming, which has helped lift economic output throughout the year.

“Many of the businesses reporting the largest increases in turnover are involved in activities related to artificial intelligence and cloud computing,” the ONS said.

GDP grew 0.4 percent in July before stalling in August, then returning to a 0.2 percent expansion in September.

“Growth was unusually concentrated in AI-related sectors,” said Ruth Gregory, deputy chief UK economist at Capital Economics.

“The latest monthly data suggests the economy is entering Q4 with more momentum than we expected,” she said.

The Bank of England last week lifted its economic growth forecast for this year and next, citing strength in business investment linked to AI-related demand.

The central bank delivered its forecasts as it raised its benchmark interest rate for the first time in more than three years as soaring energy costs push up global inflation.

‘Resilience’

Along with Ukraine’s strikes on Russian refineries, disruptions to Gulf energy supplies owing to the US-Iran war have caused record-high diesel prices around the world.

“The Middle East conflict has hit growth worldwide, yet Britain is showing stand-out resilience,” finance minister John Healey said in response to Thursday’s figures.

However, the Bank of England expects in its central forecast for UK inflation to peak at 4.9 percent in the second quarter of next year.

In its worst-case scenario, where oil prices soar far beyond $100 a barrel, the bank warned that UK inflation risked hitting 6.2 percent in the third quarter of next year from 3.5 percent currently.

Millions of Britons face a jump in energy bills from the start of 2027, even after the Labour government offered some assistance in its annual budget announcement last month.

Oil prices have eased to around $90 a barrel in recent weeks on hopes for diplomatic talks aimed at ending the US-Iran war.

“The economy continues to show resilience, but there are fears it will lose momentum just as energy-driven inflation is keeping pressure on interest rates,” said Kit Rees, investment strategist at wealth management firm Quilter.

AFP