The UK’s gross domestic product (GDP) for the third quarter of 2026 (July-September), published by the UK Office for National Statistics (ONS) on the 12th, grew 0.7% from the previous quarter. Growth accelerated from 0.5% in the second quarter, marking the strongest quarterly expansion in about two and a half years, since the first quarter of 2024. Artificial intelligence (AI)-related capital investment lifted the services sector.
At the same time, market attention is turning to the London stock market. Following the data release, the FTSE 100 index rose 0.2%, approaching a record high. The solid macroeconomic indicators suggest that the corporate sector is absorbing two headwinds: high interest rates and volatile energy prices.
The growth rate matched economists’ expectations compiled by Reuters. On a year-over-year basis, growth accelerated to 1.9%, the highest level since the fourth quarter of 2024. The services sector, which accounts for the majority of the domestic economy, expanded 0.9% from the previous quarter.
ONS Chief Economist Grant Fitzner explained: “The economy grew strongly in the third quarter. Almost all of that was due to strong, broad-based growth in the services sector.” According to Fitzner, within the services sector, computer programming—which has been robust since the start of the year—grew sharply again, recording its highest growth rate in the past three years. He said evidence continues to show that AI-related companies are driving this field.
On a monthly basis, GDP in September alone rose 0.2% from the previous month. August’s growth rate was revised down to zero. The UK economy grew 0.6% in the first quarter, maintaining unexpected resilience throughout the first half of the year.
| Indicator | Figure |
|---|---|
| Q3 2026 GDP (quarter-over-quarter) | +0.7% |
| Q2 2026 GDP (quarter-over-quarter) | +0.5% |
| Q1 2026 GDP (quarter-over-quarter) | +0.6% |
| Q3 2026 GDP (year-over-year) | +1.9% |
| Services sector (quarter-over-quarter) | +0.9% |
| September monthly GDP (month-over-month) | +0.2% |
Note: Based on figures published by the UK Office for National Statistics (ONS)
Monetary policy is also being forced to readjust. The Bank of England last week decided to raise its policy rate and upgraded its 2026 growth forecast to 1.6%. That is significantly above the 1.2% projected by the government’s Office for Budget Responsibility (OBR) following the budget plan announced by Chancellor of the Exchequer John Healey on October 28. The central bank cited AI-related spending, along with a small and temporary boost from Healey’s fiscal plans, as factors behind the economy’s strength.
Nevertheless, cautious views remain about the outlook. With high energy prices persisting and interest rates rising, signs of weakening demand among consumers and businesses are beginning to emerge. September retail sales declined in volume terms. In the period leading up to the October budget, consumer confidence deteriorated from the previous month by the largest margin since April 2020. Some economists expect growth to slow in the fourth quarter.
In the stock market, the data’s implications are clearly dividing valuations by sector. Funds tend to flow toward growth and industrial sectors that benefit from the structural tailwind of AI-related capital investment, while retail and consumer-related stocks are weighed down by concerns about slowing domestic demand. Even as the FTSE 100 approaches record highs, cautious views remain on stocks with high dependence on domestic demand.
For the Bank of England, the solid GDP data supports last week’s decision to raise rates. It suggests that the UK economy has the strength to absorb tightening measures aimed at curbing inflationary pressures without falling into recession.
Market participants will now be watching to see how long fourth-quarter growth momentum can be sustained. The focus will be on the continuity of AI-related investment and the pace of recovery in household purchasing power.