UK economic growth expected to have picked up amid AI and defence drive

UK economic growth is expected to have accelerated in the third quarter as a spending drive on AI and defence helps stave off a cost-of-living slowdown.Economists are expecting to see growth pick up to 0.7% for the third quarter – between July and September – following growth of 0.5% in the second quarter.Growth has been boosted by business investment, with spending on areas such as technology, infrastructure and defence becoming a key source of growth in the economy, experts think.Data centres were among the key sectors boosting business investment, experts said (Yui Mok/PA)PA ArchiveThis is helping to offset the impact of higher energy prices on households and businesses since the start of the Iran war.The AI spending boom was a contributor to higher GDP in July, with the ONS revealing that many of the businesses reporting the largest turnover were involved in activities related to AI and cloud computing.Sanjay Raja, chief UK economist for Deutsche Bank, said there were a few key sectors that were boosting business investment – data centres and IT, defence and aircraft.“Consumers have also been out in force, despite the energy shock,” he said.“And businesses have remained fairly confident regardless of still-elevated geopolitical uncertainty.”There were calls to protect hospitality workers (Alamy/PA)Economists are expecting growth in other areas of the economy such as hospitality, which benefited from a spending boost over the summer, and healthcare activity.That could be helping offset weaknesses in sectors that are more likely to be squeezed by higher energy prices and borrowing costs, such as manufacturing and construction.But Mr Raja cautioned that growth is set to slow over the final quarter of 2026 as higher inflation and interest rates begin to weigh.Read More“Looking ahead, we expect the UK economic growth story to have cooled a bit,” he said.But he said there had been “surprisingly resilient” survey data into November and added that pre-Budget uncertainty was kept to a minimum this year, which may have kept business activity more stable.