The UK economy grew 0.2% in September, exceeding expectations of 0.0% growth. Construction output rebounded 0.8% after four consecutive monthly declines, while services and industrial output each rose 0.2%. Third-quarter GDP increased 0.7% from the previous quarter, aligning with the Bank of England’s forecasts.
Economists are divided on whether the Bank of England will raise interest rates again in December. Ruth Gregory of Capital Economics believes the data increases the likelihood of a December rate hike, which would mark the second increase in two meetings. The central bank had raised its base rate last week for the first time in over three years.
James Smith of ING expects another rate rise in February, followed by rate cuts before the end of 2027 or early 2028 if inflation eases. Consumer spending rose 0.6% in the third quarter despite pressure on household incomes, suggesting households are borrowing more and saving less to offset higher energy prices.
Business investment rose 0.4% in the quarter, its strongest three-quarter run since early 2022, driven by firms’ growing appetite for AI. However, IT and professional services, which contribute significantly to growth, showed weakness in September. Deutsche Bank noted that GDP is up 1.8% so far this year, the best performance since the pandemic rebound, though the UK has lost its title as the fastest-growing Group of Seven economy to the United States.