AI fuels fastest economic growth in two years

Economists warned interest rates would likely rise after AI helped deliver “strikingly strong” growth in Britain, despite the impending inflation shock from the Iran war. Fergus Jimenez-England, an economist at the National Institute of Economic and Social Research, said it had been an “exceptional third quarter”. He said: “In the face of higher energy prices, growth has been resilient, inflation expectations are elevated, and the labour market is showing signs of stabilisation. “With little indication that interest rates are materially dampening demand, the Bank of England should remain focused on the risk of second-round effects as the next pay round approaches. “Further rate rises are needed to keep inflation contained and protect the economy from a costlier correction later.” Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, added: “These figures confirm a strikingly strong third quarter as the UK remained resilient to the economic fallout from US-Iran hostilities, with AI activity helping power growth across sectors such as services, underscored by a stronger than expected September. “AI fired up as an extra engine of growth in the quarter, with businesses ramping up investment, including in infrastructure, tech hardware and computer programming, to strengthen their resilience against growing headwinds, while also boosting economic activity. “This potent third quarter probably marks the peak for economic growth for some time, with output set to slow sharply in the fourth quarter as the financial squeeze from higher energy bills weakens spending and investment, compounded by rising interest rates. “These robust figures help keep a December interest rate rise firmly on the table by reinforcing policymakers’ view that the economy remains resilient enough to cope with another rise in borrowing costs.”