Economy grows by 0.7% – industry reaction

The UK economy grew by 0.7 per cent in the third quarter, its fastest expansion in two and a half years, driven by widespread growth in the service sector, according to figures from the Office for National Statistics (ONS).

The growth was up from 0.5% in the second quarter and in line with economists’ forecasts. Growth reached 1.9% year-on-year, while September output rose 0.2%, beating expectations of no monthly growth.

Services expanded 0.9% over the quarter, including a 2.1% rise in information and communication and 1.6% growth in professional, scientific and technical activities. Manufacturing also grew 0.9%; consumer and government spending each increased 0.6%, while business investment stood 3% above a year earlier.

Neil Rudge, Chief Banking Officer at Shawbrook, said:“Back-to-back growth in monthly GDP is welcome news, particularly given the backdrop of the Autumn Budget and the Bank of England’s recent base rate rise. UK businesses are doing the heavy lifting, keeping the economy moving despite rising costs and a tough environment, with the service sector standing out.

“The OBR’s cut to its 2027 growth forecast shows there’s still ground to make up, and targeted support could make a real difference to how much further SME leaders can take things. Even so, the mid-market is a resilient group. With 92% planning to invest in their businesses over the next year, the appetite for growth is clearly there. With the right funding and preparation, the results will follow.”

Anna Leach, Chief Economist at the Institute of Directors, said “GDP grew by 0.7% in the third quarter, extending the UK’s better-than-expected run this year. The economy has grown by 1.4% so far in 2026 – almost double rates that were forecast in April. That reflects three things: energy prices not having risen as sharply as feared, stronger growth in some sectors connected with AI, and business adaptability. The question is what happens next.

“The outlook for the Middle East remains clouded. AI could deliver significant productivity gains, but businesses are working through its implications for cyber security and jobs. The Milburn review recommendations will be rightly targeted at ensuring the welfare system helps young people find work. Government must now take stronger action to address the costs and risks of hiring young people.”

Alpesh Paleja, CBI Deputy Chief Economist, said “Economic activity held up going into September, and gains over the summer mean that it managed to churn out bumper growth over the third quarter as a whole. Over the year to date, the information and communications and professional services sectors have supported much of the economy’s resilience, partially linked to the rollout of AI.

“But the picture is less encouraging when we dig a little deeper. Conditions are uneven across sectors, with activity more subdued elsewhere. Across the UK, firms continue to face a common challenge: the high and growing cost of doing business – set against a backdrop of uneven demand conditions. Another bout of rising inflation will squeeze living standards again, eating into recent gains in resilience.

“While the Budget did lay some important foundations for long-term growth, much of the government’s reform agenda has been deferred to the forthcoming Ten-Year Plan. Businesses will be looking to the Ten-Year Plan for more detail on how the government intends to strengthen conditions for investment and growth. “Critical to success is bringing down energy costs across the economy, ensuring any greater public control crowds in – rather than crowds out – private investment, and tackling the NEETs crisis without undermining existing efforts by businesses to create opportunities for young people.”

Julian Jessop, Economics Fellow, Institute of Economic Affairs, said “The 0.7% growth in the UK economy in the third quarter is a tribute to the resilience of the private sector in the face of the energy shock and policy headwinds. This resilience is despite rather than because of anything the government has done. In particular, the persistent weakens of the construction sector underlines the failure of flagship policies to boost housebuilding and infrastructure spending.

“The government’s clumsy interventions are also continuing to add to labour and housing costs, including rents. Instead, the key driver of growth and business optimism has been the rollout of AI. This is an area that the government has not got round to messing up, though that may yet be coming.

“In the meantime, the government is still borrowing more than expected and the labour market remains weak. The full impact of higher inflation and higher interest rates has also yet to be felt. Early surveys for the fourth quarter already show that consumer confidence, retail spending, private sector hiring and housing market activity are all starting to slide again.

“2026 will still be a year when the economy performed much better than expected – at least in terms of GDP. But the New Year will start with further increases in energy bills and high levels of job insecurity, which will matter far more to most people.”