On January 2, 2026 in London, England, people visit the observation deck in Greenwich Park on a sunny but cold day with a view of Canary Wharf financial district in the distance.
Henry Nichols AFP | Getty Images
The UK economy was flat in January as growth continued to slow even before the war between the US and Iran triggered a global energy price shock.
The preliminary figures released on Friday were lower than the 0.2% month-on-month growth rate in gross domestic product (GDP) expected by economists polled by Reuters. The economic growth rate in December was 0.1%.
The UK economy grew by a weaker-than-expected 0.1% in the final quarter of 2025.
Britain’s key services sector showed no growth in January, with production contracting by 0.1% and construction increasing by 0.2%, the Office for National Statistics said.
In her annual spring statement released earlier this month, UK Chancellor of the Exchequer Rachel Reeves touted the growth as a sign that the government has “the right economic plan for this country”.
But new figures show evidence of a lackluster British economy, which is under further strain following the outbreak of the US-Iran war.
The dispute has caused oil and gas prices to rise, raising concerns about the inflation outlook for energy importing countries such as Britain and prompting market players to reassess the likelihood of the Bank of England cutting interest rates later this month.
In the UK, mortgage interest rates have risen amid the escalating conflict, while the government’s borrowing costs have fluctuated significantly.
As of Friday morning, markets were pricing in just a 1.83% chance of the central bank cutting interest rates on March 19, according to LSEG data.
British bonds (known as gilts) were little changed across most curves after Friday’s data release. short term 2 gold plated Yields fell by 3 basis points.
of british pound Against the US dollar, it was flat, down 0.4%. Against the euro.
Sanjay Raja, Deutsche Bank’s chief UK economist, said in a note after the latest GDP release that the report was “not what the doctor ordered”.
“Like other countries, we expected the UK economy to remain weak until 2025 and then recover strongly,” he said. “Our hopes for a strong start to the year have been dented, and with the Iran conflict emerging in the background, further headwinds will weigh on UK growth.”
Mr. Raja said the rapid rise in energy prices would put pressure on real disposable income, curbing spending, investment and companies’ employment plans.
Suren Till, chief economist at the Institute of Chartered Accountants in England and Wales, said any remaining hopes that a BoE interest rate cut was imminent had been “disappeared” despite the UK economy stalling.
He said: “The Middle East conflict means that the energy crisis and supply chain disruptions have brought both Britain closer to stagflation, the chancellor’s fiscal space has been eroded and any remaining momentum in the economy has now evaporated.”
“While these disappointing numbers will raise concerns about the health of the economy, there is little expectation of a rate cut next week, given that rate setters are deeply concerned about the sharp increase in new inflation risks from the conflict.”
