UK economy shows signs of rebound fueled by tech and security investments

The Office for National Statistics (ONS) will release the latest gross domestic product (GDP) data this Thursday.

Analysts predict a growth rate of 0.7% for the July-September period, a rise from the 0.5% growth recorded in the second quarter.

Business investment is believed to be a significant factor, with spending on technology, infrastructure, and defense contributing substantially to economic expansion. This is intended to mitigate the impact of higher energy costs experienced by both households and businesses since the start of the Iran war.

The surge in AI-related spending was evident in July, according to the ONS, with many of the businesses reporting the highest turnover engaged in AI and cloud computing activities.

Sanjay Raja, chief UK economist for Deutsche Bank, highlighted data centers and IT, defense, and aircraft as key sectors driving business investment.

“Consumers have also been out in force, despite the energy shock,” he stated. “And businesses have remained fairly confident regardless of still-elevated geopolitical uncertainty.”

Growth is also expected in sectors like hospitality, which benefited from increased spending during the summer, and healthcare. This could help balance out weaker performance in industries vulnerable to higher energy prices and borrowing costs, such as manufacturing and construction.

Mr. Raja anticipates a slowdown in growth during the final quarter of 2026 due to the impact of inflation and interest rates.

“Looking ahead, we expect the UK economic growth story to have cooled a bit,” he said. However, he noted surprisingly robust survey data through November and attributed the stability in business activity to minimal pre-Budget uncertainty this year.