The UK economy stagnated in January with GDP showing no growth, official data revealed, raising concerns about Britain’s vulnerability to rising energy prices triggered by the Iran conflict and Brent crude surging above $100 a barrel
Britain’s economy unexpectedly stalled at the start of the year, highlighting structural vulnerabilities even before the latest surge in energy prices triggered by the Iran conflict, according to official data released on Friday.
Figures from the Office for National Statistics showed that the UK’s gross domestic product (GDP) recorded “no growth” in January, missing economists’ expectations of a 0.2 per cent expansion. The data suggests the economy has effectively been flat since June 2025, ending January at roughly the same level as six months earlier.
The weak numbers have intensified investor concerns about Britain’s ability to withstand the economic fallout from the war involving Iran, which has already pushed global energy prices sharply higher.
Growth momentum fades
The data also showed that economic activity grew by just 0.2 per cent in the three months to January, falling short of forecasts for a 0.3 per cent increase.
Britain’s dominant services sector — which accounts for the bulk of economic output — showed no growth in January, offsetting modest increases in manufacturing and construction.
The figures prompted a dip in the pound against the US dollar, as investors reassessed the country’s near-term economic outlook.
Analysts say the data underscores a fragile economic backdrop even before the latest geopolitical shock.
“This is a worrying start to the quarter,” Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research, told Reuters. “Early-year improvement in business confidence is likely to be short-lived as global disruption linked to the Iran war hits the UK economy.”
Energy shock risk grows
Energy markets have already reacted sharply to the escalation in West Asia. Brent crude futures rose above $100 a barrel on Friday, climbing to around $100.56, and are on track for roughly a 9 per cent weekly increase.
The surge followed reports that Iranian strikes targeted two oil tankers, intensifying concerns about supply disruptions.
The price spike is particularly concerning for the UK, which investors view as more exposed than many Western economies because of heavy reliance on imported natural gas, weak economic momentum and stretched public finances.
These vulnerabilities have contributed to a sharp drop in British government bond prices in recent weeks.
Economists warn that sustained high energy prices could dent economic growth this year.
“If energy prices remain elevated for the rest of the year it could reduce GDP growth by around 0.2 percentage points in 2026,” Jimenez-England said.
Rate outlook shifts
Despite the weak GDP data — which would typically bolster expectations for monetary easing — markets moved in the opposite direction.
Investors are now pricing in roughly an 86 per cent probability of an interest rate hike by the end of the year, reflecting concerns that higher energy costs could reignite inflation.
The Bank of England had previously forecast the economy would grow 0.3 per cent in the first quarter and 0.9 per cent across 2026, though those projections were made before the latest escalation in West Asia pushed oil prices higher.
Meanwhile, UK finance minister Rachel Reeves said earlier this week it was too soon to assess the full economic impact of surging energy prices on Britain’s economy.
With growth already stalled, economists warn that a prolonged energy shock could further squeeze households and businesses, leaving policymakers with a difficult balance between supporting growth and containing inflation.
With inputs from agencies.
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