The UK economy ground to a halt in January, according to official figures, with gross domestic product flat and growth over the preceding three months weaker than expected. The data underscores investor concerns about the country's vulnerability to the economic fallout from the war in Iran.
The Office for National Statistics said GDP was unchanged in January, dashing forecasts for a 0.2% rise. In the three months to January, growth was 0.2%, below expectations of 0.3%. The dominant services sector showed no growth, while manufacturing and construction saw modest upticks. Sterling slipped against the US dollar.
Britain is seen as more exposed than many other Western nations to an energy price shock, due to stretched public finances, a tepid economy, and heavy reliance on imported gas. This has prompted a severe drop in government bond prices this month. Despite the weak GDP data, markets now price in an 86% chance of an interest rate hike by the end of the year, owing to rising inflation risk.
Fergus Jimenez-England, associate economist at NIESR, said: "This is a worrying start to the quarter, given that the early-year improvement in business confidence is likely to be short-lived as global disruption linked to the Iran War hits the UK economy." Brent futures rose to $100.56 a barrel, heading for a 9% weekly gain.
Jimenez-England added that if energy prices remain elevated, GDP growth could be reduced by around 0.2 percentage points in 2026. The Bank of England had earlier expected 0.3% growth in the first quarter and 0.9% for 2026, before the conflict. Chancellor Rachel Reeves said it was too soon to say how soaring energy prices would affect the economy.
