The United Kingdom's economy expanded at its quickest rate in more than two years during the third quarter of 2024, according to fresh data from the Office for National Statistics (ONS). Between July and September, gross domestic product (GDP) rose by 0.7%, up from a weaker performance in the preceding three months.
Services Sector Leads the Way
The surge was largely driven by the services sector, which constitutes the largest portion of the UK economy. Within services, computer programming and consultancy services stood out, with computer programming recording its strongest growth in three years, buoyed by increased spending on cloud computing and artificial intelligence (AI) technologies.
Grant Fitzner, chief economist at the ONS, noted that growth might have been even more robust had it not been for the conflict in the Middle East. "It is possible growth could have been even stronger" without the war, he said, while cautioning that households may not yet feel the benefits and that prices could soon outpace wages.
Political Reaction
Prime Minister Andy Burnham welcomed the figures, stating: "Despite a year where events around the world have pushed up costs here at home, our economy is growing, bringing hope for the future." Chancellor John Healey echoed this sentiment, telling the BBC that the numbers demonstrated "remarkable resilience" in the face of global conflicts and expressed hope they would "bring back confidence in Britain."
When asked whether government policies deserved credit for the growth, given that AI investment has been a key driver, Healey emphasised that ministers can always "help or hinder" business confidence and investment.
AI Investment and Business Resilience
Despite recent investor concerns about slower AI development in the US and the long-term viability of AI business models, companies have continued to invest in the technology. Sarah Coles of investment platform AJ Bell observed that since the start of the year, "it's the less visible back-office work that has delivered, with administrative and supportive services seeing strong growth," highlighting these as areas benefiting from increasing AI use.
The latest figures position the UK as the second fastest-growing economy among the G7 nations, which also include Canada, Japan, Germany, Italy, and France.
Caution Ahead
However, Jake Finney, senior economist at consultancy PwC, warned that growth is likely to slow in the coming months "unless energy markets stabilise." He pointed to a sharp rise in energy bills forecast for January, which could dampen consumer spending and confidence.
High energy costs have been exacerbated by the ongoing conflict in the Middle East and Russia's invasion of Ukraine. US and Israeli attacks led Iran to block the Strait of Hormuz, a vital shipping route for global oil and gas, while attacks on oil refineries by Russia and Ukraine have squeezed global refining capacity, pushing up diesel and petrol prices.
Entrepreneur Richard Benc, founder of mechanical watch company Studio Underdog, shared a positive outlook: "We've seen more resilience than we had forecast for and expected. We are still projecting growth this year." His company exports about 80% of its watches, with Benc noting "a surprising amount of resilience, particularly from our US customers," though some UK customers are taking longer to make purchases.
As the UK navigates global uncertainties, the latest GDP figures offer a glimmer of hope, but economists caution that sustained growth will depend on energy market stability and broader economic conditions.
