Britain's economy unexpectedly grew 0.1% in August, with computer programming leading gains that economists link to AI spending, while annual growth hit 2.1%, the fastest since 2022.
Key Points:
- UK output rose 0.1% in August, beating forecasts for a 0.1% contraction.
- Computer programming led three-month growth for a sixth straight month.
- Economists credit AI investment as a Bank of England rate rise looms.
UK GDP Surprise
Gross domestic product rose 0.1% in August from July, the Office for National Statistics said on Thursday, following gains of 0.4% in both June and July. Economists had expected a 0.1% contraction. Output stood 2.1% higher than a year earlier, the strongest annual increase since August 2022, while growth over the three months to August reached 0.7%.
Manufacturing jumped 1.2% in August, but services output was flat and construction fell 0.2%, its fourth monthly drop in a row. Computer programming, consultancy and related activities grew 5% over the three months, making the category the largest contributor to growth for a sixth month running.
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Berenberg Sees AI
Andrew Wishart, senior economist at Berenberg, said the breakdown by industry points to AI as the driver of much of the recent pickup. He also noted that consumers spent more than expected despite rising inflation. Jake Finney of PwC said business investment, especially in technology hardware, has powered this year's surprisingly strong growth, though Britain still lags the U.S. on both the scale of that spending and its payoff.
Paul Dales, chief UK economist at Capital Economics, said the economy has proved sturdier than his team expected, with businesses benefiting partly from AI-related spending. Households are pulling back, however, with consumer-facing services down 0.3% in August, and he still expects higher inflation to slow growth.
Bank Of England Outlook
The data hands Chancellor John Healey a lift before his budget, and he called the figures "more proof of Britain's resilience." Borrowers may see it differently. Samuel Fuller, director of Financial Markets Online, said the Bank of England is widely expected to raise its base rate to 4% in three weeks.
Third-quarter growth now looks on track to beat the central bank's 0.4% forecast.
The August figure caps a strong summer for British output, after the statistics agency revised June growth up to 0.4% from 0.3% and left July's 0.4% gain unchanged. Earlier this week, the International Monetary Fund raised its 2026 forecast for Britain to 1.3%, also pointing to AI investment. Even a flat fourth quarter would leave 2026 growth at 1.5%, above the 1.4% Capital Economics had forecast.
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