The UK economy showed no growth in January, official figures released Friday revealed, intensifying concerns about the country’s economic outlook as the conflict in the Middle East drives up global energy prices. The Office for National Statistics (ONS) reported a 0% change in gross domestic product (GDP) for the month, a significant slowdown from the 0.1% increase recorded in December.
The stagnation, which fell short of City expectations of a 0.2% rise, comes as the UK braces for potential economic disruption from the escalating tensions in the Middle East. Oil prices have surged more than 25% since the start of the conflict, currently trading above $100 a barrel, adding pressure to household budgets and business costs.
The pound experienced a decline against the US dollar following the release of the GDP figures. Chancellor Rachel Reeves, responding to the data, stated, “Our economic plan is the right one, but I know there is more to do.” She added that the government is focused on cutting the cost of living, reducing national debt, and fostering economic growth across the country.
A key contributor to the flatlining economy was a 2.7% decrease in food and beverage services, as consumers cut back on discretionary spending, particularly eating out, according to the ONS. This decline represented the largest negative contribution to monthly GDP from any single industry. Output in the service sector as a whole remained unchanged, impacted by falls in recruitment activity. The production sector contracted by 0.1%, while construction saw a modest increase of 0.2%.
The figures add to a challenging start to the year for the Labour government, which is already grappling with rising unemployment – currently at its highest level in five years – and complaints from businesses about the impact of increased employer taxes and the national living wage on job creation. Hiring has slowed most notably in the hospitality and retail sectors.
Economists have warned that the January figures likely underestimate the full impact of the Middle East conflict on the UK economy. Paul Dales, chief UK economist at Capital Economics, noted that the economy was already subdued before the recent surge in energy prices. He revised down his annual GDP growth forecast, suggesting potential growth rates of 0.6%, 0.4%, or even 0.1% depending on the duration and severity of the energy price increases.
Rachel Reeves is scheduled to deliver a speech early next week outlining the Labour government’s economic strategy, amid growing calls for an emergency energy support package. Sanjay Raja, chief UK economist at Deutsche Bank, cautioned that rising energy prices would squeeze disposable incomes, constrain spending and investment, and dampen business confidence. He predicted that hiring plans would likely be position on hold.
The UK economy grew by 1.3% in 2025, an improvement over the 1.1% growth recorded in 2024, but still below initial official forecasts of 1.5%. The Bank of England is facing increasing pressure to respond to the inflationary pressures stemming from higher energy costs, with financial markets anticipating a potential interest rate hike later this year or in 2027.
