The UK economy showed remarkable resilience in the third quarter of 2026, with GDP rising by 0.7% quarter-on-quarter. This growth was largely driven by the IT and professional services sectors, which have expanded rapidly despite staff reductions. IT growth is closely tied to data centre investments, with the UK being a top destination for such projects in Europe. However, output in this sector dipped in August and September, suggesting potential slowdown ahead.
Professional services also contributed significantly to growth, though the reasons are less clear. AI-related R&D is part of the story, but other areas like legal, advertising, and accounting services have also seen strength. These industries weakened in September, hinting at a possible fade in their rapid growth.
Consumer spending held up better than expected, growing by 0.6% in the third quarter. However, rising natural gas prices and expected increases in utility bills in January could put pressure on household spending in the coming months.
The Bank of England is likely to consider another rate hike in February due to the economy's strength. Yet, construction and private housebuilding have declined significantly since 2025, indicating the restrictive effects of higher interest rates. If inflation eases by next summer, rate cuts could begin by the end of 2027 or early 2028.