The Bank of England now expects the UK economy to expand by 1.6% across 2026, a considerably more optimistic view than the 1.2% projection the Office for Budget Responsibility published after October’s budget.
That divergence between the two forecasts sharpened on Thursday when official gross domestic product figures confirmed the economy grew by 0.7% in the third quarter of 2026.
The reading matched what economists had anticipated, and it marked an acceleration from the 0.5% expansion recorded in the second quarter and 0.6% in the first.
London’s blue-chip index, the FTSE 100 (UKX), edged 0.2% higher on the day, drawing closer to record territory as investors absorbed the upbeat growth data.
The quarter-on-quarter pace of expansion has been supported by two distinct forces: corporate investment in artificial intelligence infrastructure and a short-term fiscal boost linked to the government’s October budget.
The central bank, which cited ongoing investment activity as a key consideration, raised interest rates just last week, signalling it sees growth as robust enough to withstand tighter monetary conditions.
Yet beneath the headline GDP figure lies a more complicated picture for ordinary consumers and the businesses that depend on their spending.
Retail sales volumes across the UK declined during September, pointing to caution among shoppers even before the full effects of the budget were known.
Consumer confidence also deteriorated sharply in the run-up to that budget, suffering its steepest single-month drop since April 2020 at the height of early pandemic disruption.
Elevated energy prices and persistently high borrowing costs are expected to continue squeezing household finances through the final three months of 2026.
The combination of those pressures means that while the macroeconomic picture is broadly encouraging, businesses oriented toward domestic demand face a more uncertain final quarter.
Whether the momentum seen in GDP data through the first nine months of 2026 can be sustained will depend heavily on how inflation, energy markets, and interest rate expectations evolve in the coming weeks.