Britain’s economy unexpectedly stalled at the start of the year, heightening concerns that escalating geopolitical tensions and rising energy prices could hurt growth in 2026.
New figures from the Office for National Statistics (ONS) show that gross domestic product (GDP) recorded no growth in January, following modest growth of 0.1 per cent in December. Economists had predicted a stronger start to the year and predicted a monthly increase of around 0.2 percent.
The latest data suggests the UK economy started 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.
On a rolling quarterly basis, the economy grew just 0.2 percent in the three months to January, only slightly stronger than the 0.1 percent in the previous quarter and below analyst expectations of 0.3 percent.
The figures add to growing fears among economists that Britain’s fragile recovery could stall further as rising oil and gas prices lead to higher inflation and weaker consumer spending.
Liz McKeown, director of economic statistics at the ONS, said the latest figures underline the muted nature of the recovery.
“The overall picture remains subdued,” she said, noting that several key sectors struggled to gain momentum during the month.
The services sector, which accounts for around 80 percent of Britain’s economic output, reported no growth in January. Manufacturing output fell by 0.1 percent in the same period, while construction activity made the only positive contribution with an increase of 0.2 percent.
Economists warned that January’s stagnation left the economy vulnerable to external shocks, particularly the rise in global energy prices triggered by the worsening conflict in the Middle East.
Martin Beck, chief economic adviser at consultancy WPI Strategy, said the disappointing GDP numbers showed the economy had already started to lose momentum before geopolitical tensions escalated.
“The British economy was already losing momentum before the recent war-related shock,” he said.
Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research (NIESR), described the figures as a worrying signal for the coming months.
“This is a worrying start to the quarter as the improvement in business confidence at the start of the year is likely to be short-lived as global disruption related to the Iran war hits the UK economy,” he said.
Financial markets have already begun to adjust their monetary policy expectations in light of rising energy prices. Oil prices have risen sharply in recent weeks amid fears that shipping routes in the Strait of Hormuz, one of the world’s most important oil transit corridors, could face prolonged disruption.
Brent crude remained above $100 a barrel on Friday, a level not seen since the energy shocks following Russia’s invasion of Ukraine.
The rise in oil and gas prices has complicated the outlook for the Bank of England, which had previously been expected to cut interest rates later this year as inflation began to ease.
Before the conflict erupted, markets had predicted at least two rate cuts in 2026, with investors estimating a first rate cut at the bank’s next meeting with a probability of around 90 percent. However, rising energy prices have greatly reduced these expectations.
The Bank of England is now widely expected to leave its key interest rate unchanged at 3.75 percent when policymakers meet next Thursday, as officials consider whether the energy shock could push inflation higher again.
Although U.K. inflation fell to 3 percent in January and is expected to fall further in the spring, analysts warn that higher energy costs could increase inflation by up to a percentage point later this year, depending on how long the conflict lasts.
Some economists have warned that household energy bills could rise by up to £500 in the summer if wholesale gas prices remain high.
Government borrowing costs have also risen sharply as investors reassess inflation risks. The yield on British benchmark government bonds rose again on Friday by 0.10 percentage points to 4.78 percent.
The weaker economic data is increasing pressure on Chancellor Rachel Reeves, who has repeatedly stressed the government’s focus on economic growth while maintaining fiscal discipline.
Reacting to the latest GDP figures, Reeves acknowledged that the economy faces significant challenges, but stressed that the government remains committed to strengthening growth.
“I know there is more to do,” she said. “In an uncertain world, we are building a stronger, safer economy by lowering the cost of living, reducing national debt and creating the conditions for growth so that every part of the country prospers.”
Business groups have also called on ministers to take action to boost investment and productivity.
Muniya Barua, deputy managing director of BusinessLDN, said the latest figures were disappointing after a weak end to 2025.
“After a sluggish end to last year, it is disappointing that the economy is starting the year with another setback,” she said.
She warned that geopolitical tensions could undermine both business confidence and consumer spending while driving up inflation.
“The war in Iran threatens to dent business and consumer confidence while driving up inflation. Therefore, it is crucial that the government acts quickly to remove obstacles to growth that are within its control,” Barua added.
She called on ministers to speed up major infrastructure projects, free up sites for new housing and consider changes to the business rates system that could discourage investment.
The latest economic indicators are already pointing to increasing strains on the labor market. Unemployment has risen to its highest level since the pandemic, largely due to a sharp rise in youth unemployment, which has reached its highest level in more than a decade.
Combined with rising energy costs and slowing economic growth, the data suggests policymakers face a difficult balancing act in the coming months.
Economists say that for now, the January figures confirm that the UK economy started 2026 on a fragile footing and that the looming geopolitical crisis could make the path to sustainable growth even more uncertain.
