Britain Growth Flat in January Amid Oil Surge
Britain’s economy unexpectedly stalled in January, signaling a loss of momentum even before rising geopolitical tensions pushed energy prices higher.
Official data released Friday by the UK’s Office for National Statistics (ONS) showed that gross domestic product (GDP) recorded zero growth in January, disappointing economists who had forecast a 0.2% monthly expansion in a Reuters poll. The latest figures suggest the economy has struggled to build momentum despite government pledges to accelerate growth.
UK Growth Remains Weak
According to the ONS, the UK economy has been largely flat since June, underscoring persistent economic fragility under Prime Minister Keir Starmer’s government and finance minister Rachel Reeves’ economic strategy.
In the three months to January, GDP expanded by 0.2%, slightly below expectations of 0.3% growth. Following the data release, the British pound weakened against the U.S. dollar, reflecting investor concerns over the UK’s slowing economic performance.
The services sector, which dominates Britain’s economy, showed no growth in January, contradicting more optimistic business survey data. Meanwhile, manufacturing and construction posted modest gains, offering only limited support to overall economic activity.
Energy Prices and Geopolitical Tensions Add Pressure
The economic slowdown comes as global energy markets tighten amid escalating tensions in the Middle East. Brent crude oil prices climbed above $100 per barrel, marking roughly a 9% weekly surge.
Economists warn that the UK may be particularly vulnerable to energy price shocks because of its heavy reliance on imported gas and strained public finances, which limit the government’s ability to cushion households and businesses from rising energy costs.
Since the start of the U.S.-Israeli conflict with Iran, British government bond prices have also fallen sharply, reflecting growing market uncertainty.
Inflation Risks Complicate Interest Rate Outlook
The weak GDP figures might typically strengthen expectations for interest rate cuts by the Bank of England. However, rising inflation risks driven by higher energy prices have shifted investor expectations.
Markets are now pricing in an 86% probability that the Bank of England could raise interest rates by the end of 2026, rather than cut them.
Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research (NIESR), warned the data signals a fragile start to the year.
“This is a worrying start to the quarter, given that the early-year improvement in business confidence is likely to be short-lived,” he said.
Growth Outlook for 2026
Jimenez-England added that while the immediate impact on first-quarter growth may be limited, persistently high energy prices could shave about 0.2 percentage points from UK GDP growth in 2026.
Last month, the Bank of England forecast the UK economy would grow 0.3% in the first quarter and 0.9% for 2026 overall, projections made before the latest Middle East tensions emerged.
Finance Minister Rachel Reeves said it remains too early to determine the full economic impact of rising energy costs.
“With the Middle East conflict adding to the challenges facing the private sector, reliance on the public sector to support GDP growth this year is likely to increase,” said Andrew Goodwin, chief UK economist at Oxford Economics.
As geopolitical risks and energy prices continue to rise, economists warn that Britain’s fragile recovery could face additional headwinds in the months ahead.
