The U.K. economy expanded by 0.7% in the third quarter of 2026, aligning with economists' expectations, and marking an annual growth of 1.9% for the period ending in September. This growth was driven primarily by the services sector, which saw a 0.9% increase, offsetting a 0.1% growth in production and a 0.7% contraction in construction. Notably, the information and communication sector was a significant contributor, expanding by 2.1% as businesses increasingly invested in activities related to artificial intelligence and cloud computing, according to the Office for National Statistics (ONS).

Despite challenges such as surging energy prices and rising borrowing costs, the economy demonstrated resilience. The re-escalation of the conflict in the Middle East has impacted oil and gas prices, with petrol and diesel costs rising sharply, which the ONS noted restricted economic growth. In September alone, the economy grew by 0.2% month-on-month, a slight improvement from the previously reported zero growth in August. Chancellor of the Exchequer John Healey highlighted the growth as a sign of the U.K.'s resilience amidst global economic pressures, including the ongoing U.S.-Iran war.S2S3

As oil prices surged above $100 a barrel during September, natural gas prices also remained significantly elevated, about three times higher than pre-conflict levels. This inflationary pressure has led the Bank of England to raise interest rates by a quarter of a percentage point to 4% in an effort to manage rising costs, particularly in motor fuels, which have pushed petrol prices above £1.70 per litre and diesel prices close to £2 per litre. The Office for Budget Responsibility's growth forecast of 1.2% for the year now appears to be outdated as the economy continues to outperform expectations, prompting analysts to reassess future growth projections.S3

Investment strategist Scott Gardner from J.P. Morgan Personal Investing described the latest economic update as a "decent set of results," but cautioned that the U.K. economy's strength will be tested in the coming months due to uncertainties surrounding the Autumn Budget and the ongoing conflict in the Middle East. Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, characterized the third quarter as strikingly strong, attributing much of the growth to increased investment in artificial intelligence and infrastructure by businesses.S1