The UK economy grew by 0.7% between July and September, according to the first estimate published this morning by the Office for National Statistics. That matched forecasts in a Reuters poll and was faster than the 0.5% recorded in the second quarter. Compared with a year earlier, output was 1.9% higher, the strongest annual growth since the end of 2024. September alone added 0.2% when economists had expected no change, although August was revised down to zero from the 0.1% first reported last month.
Services did almost all the work. The sector, around four fifths of the economy, grew 0.9% in the quarter, with computer programming and consultancy making the largest single contribution as companies spend on artificial intelligence and cloud computing. Production edged up 0.1% and construction fell 0.7%. Households raised their spending by 0.6%, as did the government. Business investment, the money firms put into equipment, buildings and software, rose only 0.4%, around half what economists expected and the weakest gain since the start of the year. Firms are buying in technology services rather than building capacity of their own, which makes this growth less durable than the headline suggests.
For the Bank of England, which sets UK interest rates, the figures support last week's decision to raise Bank Rate to 4.00%. In its November Monetary Policy Report the Bank lifted its 2026 growth forecast to 1.6%, and today's release is consistent with that path. Markets now put around a 75% chance on a second quarter point rise at the 17 December meeting, with three more priced by the end of 2027. Kenneth Broux at Societe Generale was more cautious about a December majority: "we'll have to wait and see." The softer signals sit outside today's numbers, with retail sales falling in September and consumer confidence suffering its sharpest monthly drop since April 2020.
What it means for GBP/EUR
The pound held steady. GBP/EUR was around 1.1966 this morning, close to the 1.2000 reached after last week's rate decision and near its best level against the euro in well over a year. A result in line with forecasts gave traders little new to act on, and the rate gap still favours sterling, with Bank Rate 1.5 percentage points above the European Central Bank's 2.50% deposit rate. Against the dollar the picture is weaker: GBP/USD slipped to 1.3271, down from 1.3472 a week ago, after hotter US inflation data on Tuesday cemented expectations of a Federal Reserve rise in December. The near term risks for GBP/EUR are the UK inflation figures for October, due later this month, and any easing in oil prices that weakens the case for further rises. For a business with euro payments due in the coming months, a forward contract fixes today's rate for settlement on a future date.
