UK GDP Growth Hits Two-Year High Despite Energy Costs

The United Kingdom economy posted its strongest quarterly performance in two and a half years during the third quarter of 2026. Data released by the Office for National Statistics shows that gross domestic product increased by 0.7 percent between July and September. This growth rate matches the expansion recorded in the first quarter of 2024 and aligns with the consensus forecasts of economists.

The surge in economic activity was driven almost entirely by the services sector, which expanded by 0.9 percent in the period. The ONS characterized this growth as broad-based. The production sector added 0.1 percent to the total, while the construction sector contracted, offsetting some of the gains. Construction represents approximately 6 percent of total economic activity.

Monthly figures also reflected strength. The economy grew by 0.2 percent in September, exceeding expectations of zero growth. However, the ONS revised the growth rate for August downward from 0.1 percent to zero. The combined data confirms that consumer and business spending remained stable despite external pressures.

Chancellor John Healey cited the results as proof of the UK’s economic resilience. He stated that the economy is growing at its fastest rate in nearly a decade. The positive data improves the outlook for government fiscal planning. The Office for Budget Responsibility previously projected 1.2 percent annual growth for the year, a figure that now appears conservative given actual performance.

Energy costs continue to shape the economic environment. Oil prices recently declined after staying above $100 a barrel for much of September. They remained elevated until earlier this month. Natural gas prices are currently about three times higher than levels recorded in February, following the US and Israeli attack on Iran. Wholesale electricity prices have doubled compared to a year ago.

These energy increases have directly impacted consumer prices. Automotive fuel costs have risen, pushing petrol above £1.70 per litre in the UK. Diesel averages are approaching £2 per litre. Inflation has increased this year primarily due to these higher motor fuel costs, which has influenced spending habits and business operations.

Suren Thiru, chief economist at ICAEW, described the third quarter as strikingly strong. He noted that the UK has withstood the economic fallout from US-Iran hostilities. Thiru identified investments in artificial intelligence as a key driver for the services sector. He observed that businesses increased investment during an AI boom, while consumers used savings to maintain spending levels despite rising inflation.

The Bank of England raised interest rates by a quarter of a percentage point to 4 percent last week. The move aimed to cool inflationary pressures. The recent growth data suggests the central bank may consider further hikes when policymakers meet in December. Analysts indicate that the strong economic performance supports the view that the economy can handle additional borrowing costs. A December rate rise remains a firm possibility.