Britain’s economy has its best quarter since early 2024, and the statisticians say AI is part of the reason

Britain’s economy grew faster than at any time in more than two years in the September quarter, and the boom in artificial intelligence showed up in the national accounts.

Gross domestic product rose 0.7 per cent between July and September, up from 0.5 per cent in the June quarter and in line with economists’ forecasts, the Office for National Statistics (ONS) said on Thursday. It was the strongest calendar-quarter growth since the first quarter of 2024.

Output rose 0.2 per cent in September alone, better than expected, after no growth in July and August. Over the year, the economy grew 1.9 per cent, the fastest annual pace since the end of 2024.

ONS chief economist Grant Fitzner said the economy grew “robustly”, almost entirely because of strong and widespread growth in services.

Where did the growth come from?

Services, which make up most of the British economy, grew 0.9 per cent in the quarter. Computer programming grew at its fastest pace in three years, and the ONS linked that to AI-related businesses. Administrative and support services also grew strongly, and car sales and repairs had their best September since 2017.

Manufacturing also grew 0.9 per cent, led by computer, electronic and optical products. Construction was the weak spot, shrinking 0.7 per cent over the quarter as new private housebuilding slowed, although it rebounded 0.8 per cent in September on infrastructure work. Food and drink services fell 1.9 per cent.

Why does AI matter here?

Much of the debate about AI is about whether it will destroy jobs. These figures show the other side of the ledger in real time: companies spending on software, cloud computing and the people who build them, and that spending turning up as economic growth.

The Bank of England made the same point last week, attributing some of the economy’s strength to AI-related spending when it raised its growth forecast for 2026 to 1.6 per cent. That is well above the 1.2 per cent the Office for Budget Responsibility forecast after the government’s 28 October budget, which did not take in some of the recent stronger data.

So why are British households not celebrating?

Because strong growth is one reason interest rates are going up. The Bank of England voted unanimously to raise rates at its November meeting, and markets are pricing in more increases into 2027.

The signs of strain are already there. Retail sales volumes fell in September, and consumer confidence had its sharpest monthly fall since April 2020 in the run-up to the budget. Some economists expect growth to slow in the December quarter as higher energy prices and borrowing costs bite.

What does it mean beyond Britain?

The United Kingdom is one of the world’s biggest economies and a major trading and investment partner for Australia. Faster British growth driven by AI investment is another sign that the technology spending boom is now large enough to move national economic figures, while central banks in Britain and the United States are lifting rates rather than cutting them.

For Australians with family, investments or pensions in Britain, the practical point is the same as at home: a stronger economy has, for now, meant higher borrowing costs, not lower ones.