UK’s economic resilience will be severely tested over the coming months

The UK economy has continued its impressive resilience in the aftermath of conflict in the Middle East – growing by 0.7 per cent between July and September of this year compared to the three months prior – but that resilience will be severely tested over the coming months by rising inflation and interest rates, the Resolution Foundation said today (Thursday).

Strong quarterly growth was largely due to surprisingly fast monthly growth in the summer, but that momentum appears to have continued into September, with monthly growth of 0.2 per cent. Recent growth was driven by services, particularly in business-facing sectors like administrative and support services and ICT.

GDP has now grown by 1.9 per cent over the first nine months of the year, putting us on track to be the second-fastest growing economy in the G7, just behind the US (2.0 per cent).

The latest data continues a decent run for the UK, in which GDP per person has risen by a cumulative 2.7 per cent over the past two years (since Q3 2024). However, income growth has been far less impressive, with real household disposable income (RHDI) per person essentially flat over that same period (falling 0.04 per cent, based on OBR forecasts for Q3).

Simon Pittaway, Principal Economist at the Resolution Foundation, said:

“The UK’s strong economic performance has continued into the second half of the year, which is all the more impressive given the ongoing disruption caused by conflict in the Middle East. But with inflation and interest rates both forecast to rise towards 5 per cent, this resilience will be severely tested in the coming months.

“Stepping back, the good news is that the UK looks to be breaking free of its reputation as a stagnation nation. The less positive news is that stronger economic growth is yet to translate into big living standards gains.”