UK economic growth accelerated to 0.7% in the third quarter, the fastest pace since 2024, according to fresh data. The expansion was powered by household spending, business investment, and government expenditure, with household consumption rising 0.6% over the quarter and serving as the largest single contributor.
On an annual basis, growth reached 1.9%. Within that total, activity linked to artificial intelligence in professional services accounted for nearly a quarter of the increase. Net exports were the only component that failed to contribute to growth.
Monthly figures for September reinforced the picture of broad-based momentum. Services, manufacturing, and construction all expanded during the month, pointing to continued economic strength as the year draws to a close.
In a note dated Friday, BCA Research said the Bank of England could adopt an increasingly hawkish tone and express concern about inflation passing through to prices at its upcoming meetings. The firm cited its growth diffusion index, which shows a widening range of economic data improving. BCA also noted that the UK has been one of the strongest Group of 10 economies this year, beating expectations despite the energy shock. That strength, according to the firm, supports a near-term floor under the pound and gilt yields.
Yet risks to growth remain elevated next year, BCA cautioned. Household consumption looks most vulnerable. Consumer confidence has fallen back, real wages are falling as prices rise, and household energy bills are set to jump further in January when the Ofgem price cap is next updated.
Together with a soft labour market, weak spending should keep inflation from feeding meaningfully into underlying prices next year, BCA said. That would limit how much the BoE needs to raise rates compared with the 90 basis points currently priced into the SONIA curve.
Data due next week will test that view. BCA said firmer private-sector pay growth in UK employment figures on Tuesday would strengthen the case for another BoE rate hike. Inflation data on Wednesday should show headline inflation rising further because of the higher Ofgem price cap, with services inflation the key gauge of second-round effects. Retail sales on Friday are likely to stay subdued as higher energy bills and weak confidence weigh on households.