The UK economy unexpectedly flatlined in January, official figures show, stoking concerns over growth as the global energy price shock from the Middle East conflict threatens to drive up inflation. The Office for National Statistics reported zero per cent growth in gross domestic product, down from 0.1 per cent in December and significantly short of City forecasts for 0.2 per cent.
The stagnation was led by a flat service sector, with recruitment activity and the hospitality industry particularly weak. The ONS said falls in employment activities made the largest negative contribution to monthly GDP, followed by accommodation and food services, where food and beverage activities dropped 2.7 per cent as fewer people dined out. Unemployment has risen to its highest level in five years, with businesses blaming tax increases and a higher national living wage.
Production output fell by 0.1 per cent, while construction grew by 0.2 per cent. Analysts noted that January's figures may have been temporarily affected by Storm Goretti and water supply outages in Kent. Over the three months to the end of January, growth was 0.2 per cent.
The flat reading came even before the recent leap in energy prices, according to Paul Dales, chief UK economist at Capital Economics: "With GDP not rising at all in January, it is clear the economy was subdued even before the leap in energy prices triggered by the Middle East conflict." Oil prices remain above $100 a barrel, having surged by more than a quarter since the start of the conflict a fortnight ago.
Analysts warn that sustained high energy prices could push inflation up, dashing hopes of an interest rate cut from the Bank of England next week. Financial markets anticipate the Bank could be forced to raise borrowing costs this year or in 2027. Andrew Goodwin of Oxford Economics said a worst-case scenario of oil at $140 a barrel could increase UK inflation from 3 per cent to 5 per cent by the end of the year, potentially leading to a mild recession.
The chancellor, Rachel Reeves, is expected to set out the government's economic plan early next week amid growing calls for an emergency energy support package. Responding to the figures, she said: "Our economic plan is the right one, but I know there is more to do. In an uncertain world, we are building a stronger and more secure economy by cutting the cost of living, cutting national debt and creating the conditions for growth to make all parts of the country better off." The UK economy grew 1.3 per cent in 2025, an improvement on 1.1 per cent in 2024 but below the official forecast of 1.5 per cent.
