The UK economy unexpectedly flatlined in January, according to data from the Office for National Statistics (ONS). This zero growth was weaker than predicted and followed a modest growth of 0.1% in December. The stagnation has raised concerns about the economy's ability to withstand external shocks, particularly rising oil prices due to the Middle East conflict.
Key Takeaways
The UK economy showed zero growth in January, falling short of predictions and raising concerns about its resilience amid rising energy prices due to the Middle East conflict. Key sectors like services and production saw declines, while construction grew modestly. The Bank of England is expected to keep or raise interest rates to combat inflation.
The services sector showed no growth, while production fell by 0.1%. Construction grew by 0.2%, but wet weather hampered progress. Chancellor Rachel Reeves emphasized the importance of continuing with the economic plan despite the challenging outlook.
The Middle East conflict has caused a significant energy shock, with oil and natural gas prices spiking due to disruptions in production and deliveries. This has led to immediate increases in fuel costs and higher mortgage rates, as the Bank of England is expected to keep interest rates on hold or even raise them to combat inflation.
The ONS reported that the fall in employment activities was the largest negative contribution from a single industry to monthly GDP. The next largest was accommodation and food service activities, with food and beverage services falling by 2.7% as fewer people ate out in restaurants, pubs, and cafes. Analysts noted that Storm Goretti and water supply outages in Kent may have also contributed to the economic slowdown.
The pound fell against the US dollar after the figures were released. Oil prices continued to trade above $100 a barrel on Friday, as widespread Iranian attacks on energy facilities across the region overshadowed a vast release of government reserves. The price of crude has surged by more than a quarter since the start of the conflict two weeks ago.
The UK economy grew by 1.3% in 2025, an improvement on growth of 1.1% in 2024, although worse than official forecasts of 1.5%. Experts warned that sharply rising living costs and heightened geopolitical uncertainty would damage consumer spending and business confidence, with the potential to trigger a recession if the conflict was sustained.
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