The UK economy stagnated in January as GDP flatlines and conflicts in the Middle East threaten growth

The UK economy stalled at the start of the year, fueling concerns that the country’s tensions and rising energy prices could hamper growth in 2026.

New figures from the Office for National Statistics (ONS) show that gross domestic product (GDP) showed no growth in January, following a modest increase of 0.1 per cent in December. Economists had predicted a strong start to the year, predicting a monthly increase of around 0.2 percent.

The latest data suggests that the UK economy entered the year with little momentum, even before the economic impact of the escalating conflict between the United States, Israel and Iran began to filter through to global markets.

Last quarter, the economy grew by 0.2 percent in the three months to January, slightly stronger than the 0.1 percent recorded in the previous quarter and below analysts’ expectations of 0.3 percent.

The figures reinforce growing fears among economists that the UK’s fragile recovery could stall as rising oil and gas prices feed into inflation and weak consumer spending.

Liz McKeown, director of economic statistics at the ONS, said the latest figures highlighted the weak state of the recovery.

“The overall picture remains positive,” he said, noting that several key sectors struggled to gain strength during the month.

The services sector, which accounts for around 80 per cent of the UK’s economic output, showed no growth in January. Manufacturing fell 0.1 percent over the same period, while construction provided the only positive contribution, rising 0.2 percent.

Economists have warned that January’s slowdown leaves the economy vulnerable to external shocks, particularly rising global energy prices caused by the ongoing conflict in the Middle East.

Martin Beck, chief economic adviser at WPI Strategy, said the disappointing GDP figures showed that the economy had already begun to slow down before political tensions intensified.

“The UK economy was already weakening before the latest war-related shock,” he said.

Fergus Jimenez-England, an economist at the National Institute of Economic and Social Research (NIESR), described these statistics as a worrying signal for the coming months.

“This is a worrying start to the quarter, as the first-year improvement in business confidence is likely to be short-lived as global disruptions linked to the Iran war hit the UK economy,” he said.

Financial markets have begun to adjust their expectations for monetary policy as energy prices rise. Oil prices have soared in recent weeks amid fears of prolonged disruption to shipping lanes in the Strait of Hormuz, one of the world’s most important oil routes.

Brent crude remained above $100 a barrel on Friday, a level not seen since the energy shock that followed Russia’s invasion of Ukraine.

Rising oil and gas prices have clouded the outlook for the Bank of England, which was expected to cut interest rates later this year as inflation slows.

Before the conflict erupted, markets had predicted at least two interest rate cuts in 2026, with investors placing a nearly 90 percent chance of the first cut at the Bank’s next meeting. However, the rise in electricity prices has significantly reduced those expectations.

The Bank of England is now expected to keep its key rate unchanged at 3.75 percent when policymakers meet next Thursday, as officials assess whether a power shock could push inflation higher again.

While UK inflation fell to 3 percent in January and is forecast to fall further in the spring, analysts warn that higher energy costs could add one percent to inflation later this year depending on how long the conflict lasts.

Some economists have warned that household energy bills could rise by up to £500 this summer if fuel prices continue to rise.

Government borrowing costs also rose sharply as investors reassessed the risk of inflation. Benchmark UK government bond yields rose again on Friday, rising 0.10 percent to 4.78 percent.

The weak economic data added to the pressure on Chancellor Rachel Reeves, who has repeatedly emphasized the government’s focus on economic growth while maintaining fiscal discipline.

Responding to the latest GDP figures, Reeves acknowledged that the economy faced major challenges but stressed that the government remained committed to strengthening growth.

“I know there is still a lot to be done,” he said. “In an uncertain world we are building a stronger and more secure economy by reducing the cost of living, reducing the national debt and creating the conditions for growth to make all parts of the country better.”

Business groups have also urged ministers to take measures to support investment and production.

Muniya Barua, deputy chief executive officer at BusinessLDN, said the latest figures are disappointing following the end of the year 2025.

“After the end of the last year which has been bad, it is disappointing to see the economy start the year again,” he said.

He warned that political tensions could dampen business confidence and consumer spending while raising inflation.

“The war in Iran threatens to hit businesses and consumer confidence while increasing inflation, so it is important for the government to act quickly to remove barriers to growth within its mandate,” Baruaru added.

He called on ministers to speed up major infrastructure projects, open new housing estates and review changes to the corporate tax system that could hinder investment.

The latest economic indicators are already pointing to growing difficulties in the labor market. Unemployment has risen to its highest level since the pandemic, fueled largely by rising youth unemployment, which has reached its highest level in more than a decade.

Combined with rising energy costs and slowing economic growth, the data suggest policymakers face a tough balancing act in the coming months.

Meanwhile, economists say January’s figures confirm that the UK economy started 2026 in a fragile state, and that the country’s crisis could make the path to continued growth even more uncertain.