The UK economy unexpectedly flatlined in January, with official figures showing zero growth in gross domestic product (GDP). The Office for National Statistics (ONS) reported that GDP remained unchanged from December, falling short of City predictions of 0.2% growth. The stagnation comes as global energy price shocks from the US-Israel war on Iran threaten to drive up inflation and dash hopes of an interest rate cut.
The service sector, which dominates the UK economy, saw no growth, with falls in recruitment activity and the hospitality sector. Employment activities made the largest negative contribution to monthly GDP, followed by accommodation and food services, where food and beverage services dropped by 2.7% as fewer people dined out. The production sector contracted by 0.1%, while construction grew by 0.2%.
Analysts noted that the economy was already subdued before the recent surge in energy prices triggered by the Middle East conflict. Oil prices remained above $100 a barrel on Friday, and a sustained increase could push inflation higher, potentially forcing the Bank of England to raise interest rates. Some economists warned that a protracted conflict could tip the UK into recession.
Chancellor Rachel Reeves acknowledged the challenges, stating that the government's economic plan is the right one but more work is needed. She is expected to outline Labour's economic strategy in a speech next week amid growing calls for an emergency energy support package. The UK economy grew by 1.3% in 2025, slightly below official forecasts of 1.5%.
