The United Kingdom's economy grew by 0.7% in the third quarter of 2026, marking the fastest rate of growth in two years, according to data released on Thursday, November 12, by the Office for National Statistics (ONS). This performance followed a 0.5% growth rate in the second quarter. The ONS reported that the expansion was almost entirely driven by the services sector, specifically computer programming and businesses related to the adoption of artificial intelligence (AI).
The growth occurred during a period where international events have impacted domestic costs. Prime Minister Andy Burnham described the figures as welcome news that brings hope for the future, while Chancellor John Healey noted that the UK is showing resilience despite global growth being affected by conflict in the Middle East. Healey stated that the government is backing investment and innovation to restore confidence in the British economy.
While the headline figures showed expansion, the British Chambers of Commerce (BCC) reported that the growth is not reaching all sectors. Stuart Morrison, research manager at the BCC, stated that investment is flat for the vast majority of small and medium-sized enterprises (SMEs). According to a BCC survey, only 17% of firms expect to increase investment in the coming months, which is a post-pandemic low. Analysts from Charles Stanley Direct and KPMG noted that while the AI-driven services sector is strong, construction remains weak and households face pressure from inflation and high interest rates.
The scale of the economic shift is centered on the services sector's performance between July and September 2026. While the Chancellor stated the economy is growing at its fastest rate in nearly 10 years outside the pandemic, the Trades Union Congress noted that individuals are still managing high energy bills. The Bank of England (BoE) recently raised interest rates to 4% this month. For a typical household or business with debt, another potential rate hike in December or February would mean an immediate increase in monthly borrowing costs, potentially offsetting the benefits of broader economic growth.
The concrete day-to-day change for consumers will likely be felt through two main channels: energy costs and interest rates. Higher oil prices and the conflict in the Middle East are expected to lead to a jump in energy bills in the new year. Economists suggest the BoE may respond to the 0.7% growth by raising interest rates again to combat inflation, which would increase the cost of mortgages and loans. What happens next depends on the Bank of England's upcoming meetings; analysts from ICAEW and Quilter indicate that a rate rise is possible as early as December 2026, while KPMG predicts the economy may flatline in the fourth quarter as higher prices dampen demand.