The Missing Huzzahs UK Q3 GDP Growth Deserves

UK Q3 gross domestic product (GDP, a government-produced output measure) hit the wires Thursday, and the reaction was eerily similar to headlines we saw on US GDP: Nice growth, but artificial intelligence-related (AI) investment in data centres is responsible, making the expansion a house of cards. But we think the data disagree—whilst another interesting nugget goes unnoticed. To us, this nicely illustrates UK stocks’ wide gap between expectations and reality.

On its face, one might reasonably think this GDP report was good news. The 3.0% annualised growth rate was the fastest since Q1 2024, continuing the rebound from a sluggish 2025.^[i] Household spending sped to 2.4% annualised, defying the many warnings from commentators we follow that high energy prices would crimp pocketbooks.^[ii] Exports jumped 6.5% annualised, extending Q2’s hot growth, whilst imports’ 7.2% surge implies strong domestic demand.^[iii] And business investment slowed from its hot spring and summer but kept growing (more on that shortly). Considering all the handwringing we have seen in headlines about the UK’s allegedly moribund economy, it seems reasonable that the news might have been celebrated with great huzzahs.

Alas, huzzahs appeared to be scant. Instead, many commentators we follow found a new downbeat angle to dwell on, as we find headlines typically do when investor sentiment is in the dumps. Several articles seized on the information and communication subsector’s 8.8% annualised growth and married it with the Office for National Statistics’ observation that this industry is this year’s largest single growth contributor.^[iv] Somehow, largest seemingly morphed to only in the zeitgeist. If only AI is driving the gravy train, much of the coverage wondered, what happens when AI inevitably downshifts?

Yet in looking deeply at the data, we find AI is far from the UK economy’s only positive contributor. In Q3, information and communication contributed only 0.18 percentage point to the services sector’s 0.9% q/q growth rate.^[v] That is a rounding error above professional, scientific and technical activities’ 0.17 ppt contribution, and we haven’t seen anyone call the UK economy a one-trick science pony.^[vi] Administrative and Support Service Activities contributed the most, 0.26 percentage point.^[vii] Auto sales and repair, finance and real estate combined outstripped AI. Call us crazy, but we see breadth and diversity here, not narrow growth. AI looks to us like one slice of a growing pie.

We think another nugget is more meaningful: Business investment’s aforementioned growth. It slowed from 12.6% annualised in Q1 to 7.2% in Q2 and just 1.7% in Q3.^[viii] Which means … Budget uncertainty apparently wasn’t a big enough headwind to wipe out investment this summer. That didn’t appear to be the case last year, when business investment fell -8.2% in Q4 as investors wrestled with countless rumours and trial balloons about potential tax hikes.^[ix] That wasn’t a permanent black hole, as Q1 2026’s 12.6% annualised investment surge suggests to us businesses just pushed planned investments until after late-November 2025’s Budget brought clarity.^[x] But this year, whether because the uncertainty was more familiar or because the economy’s foundation is firmer, investment merely slowed. To us, that speaks to some robust, underappreciated economic health.

Our research finds markets move most on the gap between reality and expectations. Q3 GDP is backward-looking, but it shows that gap was alive and well as summer turned to fall, which we think confirms UK stocks’ continued bull market isn’t built on sand.^[xi] AI-related scepticism suggests expectations remain bullishly low, which we think preserves that positive surprise power. Can we get a huzzah?