UK's 0.7% Growth Puts It on Track for Second-Fastest G7 Economy

By Nathan Brooks

The UK economy grew 0.7% in the three months to September, according to Faisal Islam. It was the fastest rate in more than two years and the strongest quarterly expansion outside the pandemic since 2017.

Economists who track Britain’s economy called the result “top gear” and “strikingly strong,” Islam said. He said the performance puts the UK on course to rank second-fastest in the G7, behind the US and ahead of Canada, Japan, Germany, Italy and France.

The reading beat forecasts by a wide margin, Islam’s comparison shows:

• 0.1%: The average prediction for July through September, made just months earlier.
• 0.3%: The effective Office for Budget Responsibility assumption at the Budget three weeks earlier.
• 0.7%: Growth recorded in the three months to September.

Across the four third quarters since the pandemic, UK growth averaged less than 0.1%, Islam said. He argued that the 0.7% result should reset a cycle of self-reinforcing negativity, particularly after Britain had been described as the “hardest hit by the Iran War.” Earlier readings drew milder labels including “solid” and “resilient.”

Islam set the surprise against what he called the world’s biggest disruption to energy flows, rising market borrowing costs and the cruel summers since the pandemic. He also considered how the economy might have performed without the Iran War and with interest rates cut instead of their recent rise.

Still, Islam cautions that the 0.7% figure is not a boom. Spending on AI and technology drove the surprise upside over the year, he said. Although the AI data-centre boom may eventually bust, the figures suggest that wider investment in those technologies is helping growth.

Consumers remained resilient at least into the autumn, Islam said, perhaps helped by better economic sentiment. In his view, that resilience may not last through the final three months of the year, as consumer confidence has already fallen with petrol and domestic energy prices rising again.

While UK borrowing costs remained a focus of concern, sterling reached post-Brexit referendum highs last week, Islam said. He called the currency another measure of the UK economy’s international standing. Productivity and investment also look stronger, particularly after recent revisions, with private-sector business investment among the most encouraging figures.

His reporting adds specific examples of industrial activity. During a meeting at Nexeon in Oxfordshire, he spoke with the chancellor. Nexeon is searching for a UK factory to manufacture cutting-edge, British electric-vehicle battery technology, while his colleagues visited British watchmakers in Maidenhead who are carving out a niche to take on the Swiss.

What does this change for households and businesses?

For businesses, the immediate signal from Islam is that AI and technology spending drove the upside over the year. He said construction and private housebuilding remain depressed. For operators, the practical test is whether investment momentum can carry through the final three months.

For households, a stronger pound and potentially lower petrol and energy prices offer possible offsets. The immediate pressure comes from rising petrol and domestic energy bills, weaker consumer confidence and the wider cost-of-living challenge that Islam expects to intensify in the coming months.

The biggest unknown remains the Iran conflict, Islam said, including whether a durable end in the Gulf can follow the US midterm elections. Some oil and gas production there is starting to normalise. If that continues, it could lower:

• Petrol prices
• Energy bills
• Government borrowing costs
• Mortgage costs

Islam expects Downing Street to invest heavily in a “settlement of the conflict.” The chancellor told him it is the “best economic policy.” Whether energy relief offsets rising household costs will determine whether September’s 0.7% growth carries into the final quarter, Islam warns.