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

Britain's economy surpassed expectations in August, driven by a surge in the computer programming sector, which further boosted growth according to official data released on Thursday. This positive economic performance provided a boost for Finance Minister John Healey ahead of his budget announcement. The Office for National Statistics (ONS) reported a 0.1% increase in gross domestic product (GDP) in August, outpacing the consensus forecast from a Reuters poll of economists, who predicted a 0.1% decline.

Annual growth accelerated to 2.1%, the highest level since October 2022, signaling the strongest recovery since the COVID-19 pandemic. Excluding the pandemic's impact, August's growth marked the fastest pace since December 2019.

The ONS data highlighted that computer programming was the leading contributor to growth in the three months leading up to August. Andrew Wishart, a senior economist at Berenberg Bank, noted that AI appears to be a significant driver of the economic upswing. Consumer spending also exceeded expectations despite rising inflation, adding to the positive outlook.

Thomas Pugh, chief economist at tax and audit firm RSM UK, remarked that the data signals a shift from resilience to respectable growth for the year, even if activity stalls in the fourth quarter. However, Healey still faces a challenging path to meet fiscal rules with long-term government borrowing costs reaching their highest since the 1990s.

Despite this, the data may influence Bank of England policymakers as they consider a potential interest rate hike next month, with the third-quarter growth forecast exceeding the central bank's expectations of 0.4%. This performance places Britain among the fastest-growing economies in the Group of Seven nations, alongside the United States.

Healey welcomed the figures, acknowledging Britain's resilience amidst global challenges, such as conflicts in the Middle East and Europe. Over the past year, the services sector remained flat on a month-to-month basis, but computer programming grew by 1.1%, raising its output by 13% so far in 2026. Business investment, particularly in technology hardware, has been a key driver of Britain's strong growth performance this year.

According to PwC senior economist Jake Finney, while the UK lags behind the US in investment scale, it is making progress and remains ahead of many European peers. The broader information and communications sector has witnessed a 12% increase in output this year, compared to 2% in Germany and 0.2% in France. Earlier this week, the International Monetary Fund projected that higher energy prices and rising long-term interest rates could weigh on British economic growth next year, although it revised up its 2026 growth forecast to 1.3% from a previous 1.0% prediction.