What is behind the surprising resilience of the UK economy?

{"text":[[{"start":10.2,"text":"The UK has not had much to boast about on the world stage in recent years. After Brexit, it suffered one of the slowest post-pandemic recoveries, one of the worst inflation shocks and a period of feeble productivity growth."}],[{"start":22.88,"text":"Now, it is suddenly starting to look like an outperformer."}],[{"start":27.2,"text":"As the IMF set out its latest forecasts in Bangkok this week, Britain won accolades for fiscal discipline — with its budget deficit set to be the lowest in the G7 by 2031 — and one of the biggest upgrades to its growth outlook of any major economy."}],[{"start":42.92,"text":"IMF managing director Kristalina Georgieva implored France to “get your house in order” with respect to high deficits, but singled out the UK as one country that had “decisively” taken action to reduce debt and deficits."}],[{"start":57.68,"text":"Official data on Thursday confirmed this picture of unexpected strength. In the face of the global energy shock, annual growth in GDP accelerated to 1.8 per cent in the three months to August — the fastest pace of expansion since 2022, when the economy was rebounding from Covid-era lockdowns."}],[{"start":91.52,"text":"This “moves beyond simple resilience; it points to something bigger — an AI-fuelled expansion”, said Simon French, chief economist at investment bank Panmure Liberum, pointing to a broad-based pick-up across services, manufacturing, trade and investment."}],[{"start":93.4,"text":"The GDP data revealed two key factors underpinning the UK’s outperformance."}],[{"start":98.64,"text":"The clearest upswing is in areas benefiting from the global rollout of AI. Computer programming grew by double digits, alone accounting for a sixth of the past year’s expansion. Professional services, the biggest contributor to the increase in GDP, was up 6.6 per cent year-on-year in the three months to August."}],[{"start":null,"text":"

"}],[{"start":117.4,"text":"AI is not the only growth driver, with sectors such as law, accountancy and advertising also thriving, as well as scientific research and development."}],[{"start":127.2,"text":"But the UK’s big advisory firms and a host of smaller consultancies — now a driving force behind UK exports — are well placed to profit from the AI boom as businesses around the world rush to adopt the technology."}],[{"start":null,"text":""}],[{"start":139.56,"text":"“The UK is a small, open economy reflecting what has been happening globally, in the US in particular,” said Bruna Skarica, chief UK economist at Morgan Stanley, adding: “We are talking about corporates helping other corporates . . . improve their efficiency.”"}],[{"start":155.4,"text":"“We are now at the point of mass adoption,” said Pippa Begg, chief executive of Board Intelligence, which sells AI-powered software for corporate boards, and expects its sales to have doubled between the first and fourth quarters of 2026."}],[{"start":169.6,"text":"Tools to summarise board packs or flag key risks, seen as cutting-edge just two years ago, were now mainstream, “basic things you would expect AI to do for you”, she added."}],[{"start":180.84,"text":"The second factor in the UK’s outperformance is that even outside tech-related hotspots, many businesses have coped better than expected with the pressures created by the Iran war."}],[{"start":191.32,"text":"Thomas Pugh, chief UK economist at the audit firm RSM UK, said that for manufacturers he had met since the conflict began, hardened by successive crises, “it was never a top three risk — it was rarely in the top five”."}],[{"start":202.28,"text":"Many businesses had already cut debt and built buffers against new shocks, for example by signing longer-term energy contracts."}],[{"start":212,"text":"“We’ve had war, pestilence and everything in between, including Brexit . . . we’ve had to adapt so much over the past few years,” said Simon Kenney, chief executive of Goodfellow, a Cambridge-based supplier of advanced materials."}],[{"start":225.84,"text":"With tariffs complicating his supply chains, he has doubled the size of his compliance team and opened a new factory in the US — but he has also seen double-digit sales growth driven by AI and defence."}],[{"start":237.8,"text":"There is a clear contrast between the strength of business-facing sectors and the more lacklustre consumer economy, where households are squeezed by weak hiring, slowing wage growth, higher tax and mortgage costs and rising energy bills."}],[{"start":null,"text":""}],[{"start":250.68,"text":"Retail has held up relatively well, partly because households have so far been able to dip into savings to offset the effects of inflation. But the hospitality sector has shrunk 1 per cent over the past year, despite a brief feel-good effect from the hot summer and the World Cup. Output in consumer-facing services remains 6 per cent below its pre-pandemic level."}],[{"start":271.8,"text":"Construction also remains a weak spot, with the slump in residential housing pulling output down 1.6 per cent year-on-year."}],[{"start":279.32,"text":"The trouble for chancellor John Healey, as he prepares to deliver a tough Budget, is that people are likely to feel worse off in the short term."}],[{"start":287.02,"text":"The fastest-growing sectors are not hiring: payroll employment has fallen over the past year in both the tech sector and professional services. Inflation is forecast to rise above 4 per cent and economists expect the Bank of England to raise interest rates next month."}],[{"start":302.8,"text":"The crucial question is whether the corporate spending splurge on AI will lead to wider gains in productivity and prosperity across the economy."}],[{"start":311.16,"text":"“That is the second step,” says Morgan Stanley’s Skarica, who expects GDP growth to slow at the turn of the year, with growth in employment and real wages returning only in the later part of 2027."}],[{"start":322.6,"text":"Begg sees starkly differing approaches in the way companies are adopting AI, with some using it to innovate, others simply to cut costs and headcount."}],[{"start":330.96,"text":"But Britain’s starting point on productivity is not as bad as previously feared, with recent data revisions making it look much less of an international outlier."}],[{"start":339.52,"text":"Andrew Bailey, Bank of England governor, is optimistic, saying that recent data showed the “beginnings” of a long-awaited pick-up in investment, related to AI. He argues that, combined with robotics, this could become the next general purpose technology, jolting Europe out of a long period of slow growth. “This is the most likely next leg up, so I am positive about it.”"}],[{"start":364.45,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1792218864_2248.mp3"}