The UK economy has surprised economists this year by posting stronger-than-expected growth. Beneath the headline figures, though, a more revealing story is emerging — one of apparent "good growth" in favoured sectors, politically vital industries left behind, and little of the expansion feeding through into living standards.

Before coming to power, Labour promised to make the UK the fastest-growing economy in the G7. Figures released on Thursday morning suggested that pledge has been achieved, and ministers have rushed to take credit. A year into government, it published an industrial strategy modelled on China's approach to business, and new statistics indicate that growth is broadly aligned with Labour's apparent method of "picking winners" — to the detriment of some industries.

Officials gave the designated high-potential sectors a Star Wars-sounding label: IS-8 — shorthand for the eight industries the strategy designates as high-potential. The group spans advanced manufacturing, clean energy, creative industries, defence, digital and technologies, financial services, life sciences, and professional and business services.

Critics of the plan argued that growth under it would not be organic. That, though, appears to be part of the point. Andy Burnham has doubled down on his predecessor's industrial strategy, highlighting the need for "good growth" as opposed to growth for its own sake. That raises the question of whether Whitehall officials tasked with driving the strategy are also weighing the kinds of growth ministers do not want.

Over the past two years, official figures have broadly beaten market expectations. The economy accelerated in the third quarter of this year, posting 0.7 per cent growth despite predictions that the country was heading for a slowdown. Treasury ministers including Torsten Bell and Dan Tomlinson issued celebratory statements, and Rachel Reeves, the former Chancellor, offered her own assessment on Thursday, praising "just how great a turnaround we achieved" in the economy.

It's More Than Just AI

Last week, the Bank of England said about a fifth of UK growth has been generated by AI-related investment. Bloomberg Economics estimates that roughly a fifth of growth has been driven by the "general purpose" technology — the kind whose effects reach across the whole economy rather than staying confined to a single industry.

But as Deutsche Bank's Sanjay Raja pointed out, "it's more than just AI."

Official data show that while growth of about 4.4 per cent in computer programming has helped boost the digital and technologies sector, the UK economy is also benefiting from relatively strong performances across other parts of IS-8.

Legal and accounting, for instance, grew by 2.3 per cent in the last quarter and has added more than £2bn in value to the economy since the 2024 election. Some economists have suggested that heightened tax speculation ahead of recent budgets has, if anything, provided upsides for growth in services — even as the rumours carried costs elsewhere, prompting business owners to sell assets or pensioners to withdraw cash prematurely.

Professional and business services are not the only sectors reaping the benefits of a government willing to back specific industries. The creative, arts and entertainment industry is up 15.2 per cent since the election, pharmaceuticals has risen by a similar proportion, and electricity-related components have lifted the wider production sector average.

Financial services, meanwhile, is among the biggest contributors to growth in absolute terms, adding more than £1bn to the economy since 2024.

Most emphatically of all, aircraft and spacecraft repair — one of the finer sub-industries monitored by the Office for National Statistics (ONS) — has grown by 29.9 per cent, while aerospace manufacturing and ship and boat building have also enjoyed a boost since Labour took power. That would likely please Chancellor John Healey, who has staked his economic agenda on making the defence sector contribute more substantially to economic growth.

What 'Good Growth' Means for the Losers

Equally significant, however, are the sectors that have suffered under Labour. Gambling and betting is one of the worst-performing services sectors in the UK economy after being hit with new taxes in Reeves' 2025 Budget.

The government's net zero agenda is also weighing on oil and gas extraction, which has been one of the biggest losers under the government over the past two years. Refined petroleum and petrochemicals industries have declined, while criticism around the farming tax appears to have hit agriculture, which has fallen slightly year-on-year.

Yet areas of the economy that are politically crucial appear to have been overlooked. Most devastatingly for the governing party, construction has faltered, with the value added to the economy shrinking since 2024 despite a manifesto pledge to build 1.5 million homes. Related industries such as cement and concrete manufacturing and real estate activities have struggled too, and a struggling construction sector could put Labour's public infrastructure drive at risk.

Then there are the industries Burnham has taken a more active interest in fixing. Sewerage services, along with food and beverage services — which covers hospitality and retail — have been among the biggest drags on growth, according to official statistics. Burnham has made both central pillars of his premiership, pledging to redesign the ownership of water companies and revive the high street.

Looming threats also remain for a government that talks up the need to build "resilience." Clothing production is down by about 16 per cent since the election, while security and investigation activity — crucial to financial due diligence and clamping down on crime — has also fallen by significant levels. And even as the government hailed its trade deal for carmakers with the US following the introduction of President Trump's tariffs, the motor vehicles industry has shrunk, in part due to the near-halting of production at Jaguar Land Rover last year.

Questions Over How Organic the Growth Really Is

The Bank of England's Andrew Bailey has warned that growth is not as broad-based as headline figures would suggest. Perhaps that is partly by design. Some analysts have suggested that government consumption "stands out" as it has far exceeded forecasts, and the public sector has expanded over the past two years — raising questions about how organic the growth actually is. That composition matters for the question hanging over the whole expansion: how much of it ultimately feeds through into living standards.

Nevertheless, economists such as Peel Hunt's Kallum Pickering have noted that "resilience is real," as consumer spending has remained higher than expected.

Yet another test for the economy is looming, with higher inflation expected in the winter and energy prices continuing to rise. ING's James Smith has also warned that professional services firms may yet see momentum fade. In the nearer term, each release of ONS sector data will show whether the winners-and-losers pattern holds — and whether the industries outside IS-8 remain behind. It may be only after 2027 that commentators will know whether Burnham's "good growth" pledge survives the storms ahead.

This article is based on reporting by Mauricio Alencar for City AM: How Labour policy is determining the UK economy's winners – and losers