London — The UK economy showed no growth in January 2026, missing the 0.2% consensus forecast, in data released Friday that came before energy prices surged due to the Middle East conflict, raising concerns about the economy’s ability to withstand further headwinds.
The Office for National Statistics reported that gross domestic product remained flat at 0.0% month-on-month in January, missing the wider forecasted increase of 0.2%.
Capital Economics had previously forecast GDP growth of 1.0% for 2026, but now projects growth could range between 0.1% and 0.6%, depending on the duration and severity of elevated energy prices.
The services sector remained flat in January, with employment activities declining 5.7% month-over-month after growing in the previous four months. Administrative and support services fell 2.3%, while hospitality output dropped 1.8%. Arts and entertainment output decreased 0.3%, and transport and storage activities contracted 1.1%.
Industrial production fell 0.1% for the second consecutive month, with mining and quarrying down 3.2% and energy production declining 0.3%. Manufacturing output edged up 0.1%. Construction activity rose just 0.2% after falling in the previous three months.
Storm Gorretti and widespread water outages in Kent may have contributed to the weak January figures by forcing some businesses to close, though the Office for National Statistics did not reference these factors in its press release.
Sanjay Raja, Chief UK Economist at Deutsche Bank, noted that expectations for a strong start to the year have diminished. Rising oil and gas prices from the Iran conflict will squeeze real disposable incomes, constraining spending and investment while dampening hiring plans.
The Bank of England faces a difficult trade-off as energy price shocks both reduce GDP growth and boost inflation. Financial markets shifted over the past week from pricing in interest rate cuts to pricing in rate hikes.
The central bank’s policy meeting next week may provide insight into how policymakers are approaching this challenge.
