They're born with dual citizenship. You have to let the US consulate know if their birth and they will have to file taxes in the US forever. Just like the rest of us!
Even if they are not born in the UK they will be a dual-citizen from birth, because you and your spouse hold UK and US citizenships.
However, being born in the UK means they can automatically pass their UK citizenship down to their children even if those children are born abroad.
But if your children are born outside the UK they cannot pass down their UK citizenship to their children if those children are born abroad.