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In January, the UK economy experienced no growth, defying expectations, just before the escalation of conflict involving the US, Israel, and Iran. This flat performance contrasted with the modest 0.1% growth recorded the previous month. The Office for National Statistics (ONS) described the economic situation as “subdued,” while analysts viewed the outcome as a “disappointing start to the year.”
These figures highlight the vulnerability of the UK economy even before the Middle East conflict triggered a significant energy crisis with potential global repercussions. Prime Minister Sir Keir Starmer cautioned that the longer the conflict persists, the more likely its impact on the UK economy will be. Although the energy price cap set by Ofgem offers some protection to households until July, rising fuel costs are already affecting motorists and heating oil consumers.
There are concerns about inflation, which had been on track to hit the Bank of England’s 2% target by spring before the conflict. Experts warn that a prolonged war could dampen household spending, placing at risk Labour’s agenda to stimulate economic growth. Chancellor Rachel Reeves affirmed the government’s approach, stating, “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.”
Meanwhile, shadow chancellor Sir Mel Stride criticized Labour’s economic stewardship, accusing it of leaving the UK exposed to the conflict’s consequences. He urged measures such as scrapping the fuel tax, supporting North Sea oil and gas, and presenting a clear strategy to reduce the deficit and control benefits spending. The ONS data also revealed that the services sector saw no growth in January, notably with dining out taking a hit, while production declined by 0.1% and construction saw a slight rise of 0.2%. Over the quarter ending in January, GDP increased by 0.2%, slightly above the 0.1% growth in the preceding three months.
Looking ahead, the Office for Budget Responsibility lowered its forecast for UK economic growth this year from 1.4% to 1.1%. KPMG UK chief economist Yael Selfin noted that growth “is likely to remain elusive,” pointing to the impact of surging energy prices and rising government borrowing costs. She also highlighted that expectations have shifted away from an interest rate cut in March, with the Bank of England likely to maintain rates instead. Maintaining higher rates for an extended period poses a challenge for businesses, which may reduce investment amid weaker growth prospects and escalating costs
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