AI-boosted UK economy beats forecasts, giving Healey pre-budget lift

A view of London's financial district. Computer programming was the largest contributor to growth in the three months to August. (EPA Images pic) MANCHESTER: Britain's economy beat forecasts in August as a further jump in the computer programming sector offered fresh evidence that AI is boosting growth, official data showed on Thursday, handing finance minister John Healey a lift ahead of his budget.

The Office for National Statistics (ONS) reported a 0.1% increase in gross domestic product in August, stronger than the consensus forecast in a Reuters poll of economists for a 0.1% drop.

The annual growth rate picked up to 2.1%, the highest reading since October 2022, when output was still bouncing back from the COVID-19 pandemic. Excluding that period, it was the fastest growth since December 2019.

Adding to signs that the artificial intelligence boom is boosting Britain's economy, the ONS said computer programming was the largest contributor to growth in the three months to August.

"The sector breakdown suggests that AI is behind much of the upswing," said Andrew Wishart, senior economist at Berenberg Bank, adding that consumer spending had also surprised to the upside despite rising inflation.

The ONS also pointed to broad-based growth over the past year across the services sector that dominates Britain's economy.

"We will have to stop talking about resilience and start talking about some genuinely respectable growth this year even if activity stagnates in Q4," said Thomas Pugh, chief economist of tax and audit firm RSM UK.

But with long-term government borrowing costs having recently hit their highest since the 1990s, Healey still faces a narrow path to meeting his fiscal rules without unsettling investors — despite a sharp drop in government bond yields on Thursday.

The data could also influence Bank of England policymakers as they weigh a rate rise next month, with third-quarter growth looking on course to exceed the central bank's forecast of 0.4%.

That suggested interest rates at current levels are not as restrictive as the BoE had assumed, Pugh added.

Britain was jointly the fastest growing economy among Group of Seven nations during the first half of 2026, alongside the US.

Healey welcomed the figures.

"Despite conflicts in the Middle East and Europe hitting people across the world, today's figures offer more proof of Britain's resilience in the face of these global shocks," he said in a statement.

For August alone, growth was driven by the manufacturing sector which showed a 1.2% month-on-month surge, defying forecasts for a small drop in output.

The services sector was flat on the month, beating forecasts for a 0.1% dip, but computer programming again stood out, growing 1.1% and leaving its output 13% higher so far this year.

Jake Finney, senior economist at PwC, said business investment — particularly for tech hardware — had been an important driver of Britain's unexpectedly strong growth performance this year.

"The UK still lags the US in both the scale of that investment and the boost it provides to growth, but it is making progress and remains ahead of many of its European peers," he said.

Output in the wider information and communications sector has increased by 12% this year in Britain, compared with 2% in Germany and 0.2% in France, according to their national accounts data.

Earlier this week the International Monetary Fund said higher energy prices and a rise in long-term interest rates are likely to weigh on British economic growth next year, although it revised up its forecast for this year to growth of 1.3% from a previous prediction of 1.0%.