UK economy grows 0.7% in Q3 as AI demand boosts tech sector resilience
AI and cloud computing drove the UK's 0.7% Q3 growth, with tech and consultancy sectors outperforming despite global pressures.
The UK economy expanded by 0.7% in the third quarter of 2023, up from a revised 0.5% in the previous quarter, as surging demand for artificial intelligence (AI) and cloud computing services bolstered output in key sectors, according to the Office for National Statistics (ONS).
The latest data show that UK GDP was 1.9% higher year-on-year, defying expectations of a slowdown amid rising energy costs linked to the Iran war. Services output climbed 0.9%, led by a 4.4% surge in computer programming and consultancy. Manufacturing grew 0.9%, driven by a 4.6% rise in computer, electronic and optical products, while construction output fell 0.7%.
Inflation reached 3.5% in September, and the Bank of England raised its benchmark interest rate to 4% in August, citing persistent price pressures. Analysts warn that higher energy prices and employment costs could weigh on growth into 2027, though the expansion of AI-related business investment offers a counterweight.
Sarah Coles, head of personal finance at AJ Bell, noted that while AI investment has driven recent gains, there are risks if heavy spending does not generate lasting profits. John Healey, UK Chancellor, highlighted the economy's resilience in the face of global volatility.
Investment strategist Kit Rees of Quilter described the outlook for the tech sector as positive, but cautioned that cost-of-living challenges may constrain broader consumer spending. The continued strength of computer services and consultancy positions the UK as a European leader in digital transformation.
For both European and Latin American investors, the UK's performance underscores the rising importance of AI and cloud computing in economic growth, while also reinforcing the need to monitor inflationary risks and the sustainability of technology-driven expansion.
