UK economy shows stronger AI-driven growth and investment

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UK AI-driven economy growth

Highlights

UK GDP grows 0.4% in Q2, with the information and communications sector, including AI companies, contributing almost half of the increase.
ONS reports Q2 capital spending on plant and machinery rises to £22.1 billion, driven by investments in ICT equipment and computer hardware.
Manufacturing output in computing, electronic and optical products surges 10.7% year on year in Q2, leading all 13 manufacturing sub-sectors.

Second-quarter data highlights AI-linked expansion

As reported by Reuters, citing the Office for National Statistics, Britain's economy grows by 0.4% in the second quarter, with the information and communications sector contributing almost half of that increase, more than any other industry.

Within that sector, output in computer programming, consultancy and related activities, a category that includes AI companies, rises by 3.7% from the previous quarter after a 3.8% increase in the first quarter. The figures add to evidence that AI-related activity is becoming a more visible driver of economic performance in the UK.

Since becoming prime minister in July, Andy Burnham makes AI a Cabinet-level priority. His team signals a shift away from the previous government's U.S.-centric approach toward greater emphasis on British ownership, tech sovereignty and protecting workers from disruption.

Hardware spending and manufacturing gain momentum

ONS investment data on Thursday also points to stronger AI-related capital spending across the economy. Spending on plant and machinery rises to 22.1 billion pounds in the second quarter, close to the one-off record high reached in early 2022 because of the timing of tax breaks.

An ONS spokesperson says the latest strong reading reflects ICT equipment, particularly computer hardware, as well as government spending on weapons systems. The agency's quarterly survey of business capital assets also shows a strong increase in computer hardware investment.

Andrew Wishart, senior UK economist at Berenberg, says the sharp increase in investment in information and communications technology suggests the buildout of computing power needed to run artificial intelligence boosts business investment. British manufacturers are also benefiting, with output in computing, electronic and optical products up 10.7% year on year in the second quarter, the strongest performance among 13 manufacturing sub-sectors for the first time since early 2017.

Our earlier coverage of the UK’s second-quarter GDP reading noted that the economy grew 0.4%, supported by a pickup in services and stronger business investment, alongside a June boost from seasonal spending. It also highlighted a cautious backdrop, with energy-price risks and pressure on household budgets still shaping the outlook and expectations for Bank of England policy.

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