According to data released on Thursday by the UK Office for National Statistics (ONS), gross domestic product (GDP) grew 0.7% in the third quarter, accelerating from the 0.5% increase recorded in the second quarter, as the growing adoption of artificial intelligence (AI) continued to drive business and consumer spending while the economy demonstrated resilience in the face of an energy shock triggered by the Iran war.

The figure matched the median estimate of economists. In September alone, UK GDP expanded 0.2%, beating market expectations of zero growth. All major sectors of the UK economy posted gains in September, with manufacturing rising 0.7% and construction expanding 0.8%.

Since the outbreak of the Iran war, the UK economy has consistently outperformed expectations, with AI-related spending providing support for growth. UK Chancellor John Healey said on Wednesday that he aims to once again exceed economic growth forecasts in 2027. Economists have also been revising up their forecasts for UK economic growth this year. However, the Bank of England expects quarterly economic growth to slow to 0.3% in the fourth quarter and to remain at 0.2% throughout 2027.

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The ONS said business-facing services drove economic growth in the third quarter. Among them, the spread of AI adoption boosted output in the information and communications industry by 2.1%. Overall, services grew 0.9%.

Meanwhile, manufacturing also showed signs of AI-driven growth, expanding 0.9% as well. Within manufacturing, output of computer, electronic and optical products rose 4.6%. Business investment increased 3% year-on-year.

Faced with yet another inflation shock, UK households also showed little sign of tightening their belts — consumer spending rose 0.6%, above economists' expectations.

Jack Finney, a senior economist at PwC, said: "It is important to note that growth is still concentrated in a relatively limited number of industries related to AI infrastructure buildout. But as AI adoption continues to spread across the broader economy, we have good reason to believe that by 2027, the benefits of AI may begin to extend to other sectors."

UK Prime Minister Andy Burnham welcomed the data. In a statement, he said: "Although events around the world over the past year have pushed up domestic costs in the UK, our economy is still growing, offering hope for the future."

A series of previously released data also highlighted the resilience of the UK economy. The UK labour market has also shown signs of stabilizing — in the three months to August, the unemployment rate fell to 4.7% from 4.9% previously, and payroll employment rose by 13,000 in September. The composite Purchasing Managers' Index (PMI) rose to 52.9 in October, an eight-month high, with both manufacturing and services activity improving.

Since the start of the year, UK economic growth has been driven mainly by the technology sector and business services. In the face of rising energy costs and borrowing costs, consumer spending has also held up better than many feared, with households drawing on savings to cushion the impact. The UK government has so far announced only limited support measures to help households weather the shock.

Although recent declines in oil prices may bring some relief to consumers at the pump, natural gas and electricity bills are expected to rise by about a quarter when the UK next adjusts its energy price cap in January.

The acceleration in economic growth has also increased pressure on the Bank of England to raise interest rates again. The Bank of England announced on November 5 that it would raise its benchmark rate by 25 basis points to 4%, with the Monetary Policy Committee approving the decision by a vote of 8 to 1. The Bank of England noted that the UK's Consumer Price Index (CPI) rose 3.5% year-on-year in September, and with energy prices remaining elevated, inflation is expected to rise to about 5% by mid-2027. At the same time, recent economic activity has been stronger than expected and the labour market has shown signs of stabilization, increasing the risk that higher energy prices will feed through into broader inflation. Investors currently lean toward expecting the central bank to raise rates again in December.