The latest UK GDP figures underline how little momentum the economy had even before the Middle East shock, with output flat in January after modest growth of 0.2% in November and 0.1% in December 2025. Activity is barely changed since last summer, leaving the UK exposed as higher oil and gas prices threaten to lift inflation, squeeze household budgets and compress company margins.
Experts are reacting to the latest figures below:
Rob Morgan, Chief Investment Analyst at Charles Stanley, part of Raymond James Wealth Management, said:
“The UK economy ended last year with a flicker of momentum with growth of 0.2% in November and 0.1% in December 2025. Yet that looks to have been quickly extinguished with today’s weak estimated January GDP reading. The flat figure for the month comes as a particularly bitter disappointment, as the UK now finds itself at the mercy of global energy markets and the potential headwinds of an extended conflict in the Middle East.
“The bigger picture is that UK economic output is no larger than it was in June last year, even before the now darkening backdrop. Now, the surge in global oil and gas prices, triggered by the escalating Iran conflict, threatens to reignite inflation, drain household finances, and squeeze company profits.
“Rising energy costs act like a tax, particularly in a UK economy so dependent on gas for both electricity and heating. Wholesale prices are effectively set by the marginal unit of power generation, natural gas, meaning any global price spike feeds directly through to bills. With the labour market already softening and households still carrying the scars of past price shocks, a renewed rise in energy costs raises the prospect of weaker consumer spending and tight margins for businesses.
“It’s now also looking less likely that lower borrowing costs will ride to the rescue. Until recently, the Bank of England had been primed to continue its interest rate cuts as inflation drifted decisively lower. Yet that glimmer of relief for borrowers has faded as policymakers confront the risk that higher energy prices could embed a new inflationary pulse. For how long the Bank delays easing will hinge on its view of the shock. The MPC may look past a short‑lived spike, but fears of a renewed wage‑price spiral would likely force a more cautious stance.
“All eyes are now trained on the Gulf to see how long the disruption lasts. If energy prices retreat quickly, the UK economy could regain some modest momentum. But a prolonged conflict risks pushing the country towards something resembling an energy shock – higher inflation and weaker growth, a toxic mix of ‘stagflation’ that damages both corporate performance and household budgets.
“Even before the current crisis the economic projections were shifting downwards for the near term. Back in November 2025, the OBR expected the economy to grow by 1.4% in 2026, up slightly from the previous year’s 1.3%. That forecast has since been revised to 1.1% in the spring statement as a cooling labour market weighed on the outlook. And this downgrade does not account for the potential inflation shock now building. If oil and gas prices remain elevated for an extended period, growth risks falling significantly short of even these low expectations.”
Richard Carter, head of fixed interest research at Quilter Cheviot:
“The latest US GDP estimate has halved the annualised rate of growth for the fourth quarter from 1.4% to 0.7%. Indeed, the rate for the whole of 2025 was revised downwards too, indicating that the US economy is slowing more than expected, and that perhaps both consumer and business confidence is weaker than hoped. This data gives a good indication of the health of the US economy in the lead up to the Iranian conflict.
“Given the strength of US energy security, it is insulated somewhat from the energy price shock being experienced in global economies right now, but regardless there will still be an impact. The US is doing all it can to mitigate against the rising oil price, knowing that it will push inflation up and prove to be a brake on the economy. The worry here is that stagflationary effects can become clearer, making the job of the Federal Reserve incredibly difficult. Such weak growth would usually result in rate cuts becoming apparent, but events in the Middle East mean we are more likely to be back in a holding pattern, waiting for clear signs that either the conflict will end or will drag on for years. For now that certainty is not available.
“The latest personal consumption expenditures inflation figures also highlight prices remain sticky in the US, with the core figure coming in at 3.1% and the overall rate above target. For now, there is likely to be a pause on Wednesday’s interest rate decision, but after that it could very much depend on the influence of incoming Chair Kevin Warsh.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said;
“There had been some hope that the UK economy was picking up around the turn of the year. But the fact that GDP stagnated in January suggests that the recovery in survey data was significantly overstating the health of the real economy. However, ultimately investors and policymakers are no longer particularly interested in the debate about the sort of momentum the economy started the year with. Instead, they are much more focussed on the Middle East conflict and the impact this will have on growth.
So until quite recently, the Bank of England meeting next week was very likely to deliver a rate cut. But now even though the economy is weak, the meeting is very likely to result in rates staying on hold as policymakers give themselves time to see how the conflict plays out and the likely impact on inflation. And while we think a return to rate hikes this year would take a much bigger and more extended increase in energy prices, it is certainly possible that the cuts this year end up being derailed by the currently elevated oil price.”
Lindsay James, investment strategist at Quilter, said:
“The UK economy has started as it is predicted to go on – sluggish and unexciting, with global risks threatening to derail the government in its quest to boost the rate of growth. The Office for National Statistics reported that January saw no growth whatsoever, with the three-month rate coming in at 0.2%, up marginally from the previous quarterly figure. Services returned to growth in those three months, but quickly stagnated again in January, a potential ongoing concern given the UK’s reliance on that sector. The construction sector also continued its contraction, falling a further 2.0% in the three months to January. The numbers reflect an economy where spending is focussed on needs rather than wants. The fact that car repairs were one of the areas called out for growth, at a time when the UK is blighted by potholes, says a lot. Looking more deeply, consumers are reining in on the ‘fun’ spending – accommodation and recreation are firmly in the red. This suggests confidence remains low, amid rising unemployment, and before events in the Gulf are even taken into account.
“The problem facing the UK is that despite the government saying they need to stick to the plan to produce economic growth, forecasts point to very little improvement, with even 2% growth a year becoming a pipe dream. Now, the economy did manage to confound the expectations that it would slip into recession at the end of 2025, and last year saw it have a good first half of the year so some of that could be repeated in time. But, the OBR just 10 days ago downgraded 2026’s forecast for growth.
“And since the Spring Statement, the geopolitical situation has erupted into something that could further threaten the growth prospects of the UK. Oil is now at $100 a barrel, and with Iran threatening maximum pain on economic issues, that price could easily climb. The longer the oil price stays elevated, the greater the pressures on businesses and consumers. With a weaker labour market hitting at the same time, consumers won’t necessarily be protected by wage rises to the same extent as recent history. Growth, as a result, is going to be increasingly challenged of late with future forecasts very difficult to predict given the closure of the Strait of Hormuz.”
Jeremy Batstone-Carr, European Strategist Raymond James Investment Services, said:
“While today’s data is historic and overshadowed by the ongoing conflict in the Middle East, the UK economy got off to 2026 at a reasonable clip, boosted by strength in post-festive season retail sales and an improvement in industrial production. Today’s outcome was entirely anticipated by the improvement in business surveys at the start of the year.
“However, the improvement in activity proved patchy, with sectors such as construction adversely impacted by winter storms while some businesses and schools were also shuttered for a brief period. The good news is that adverse weather conditions courtesy of Storm Goretti didn’t last, which should ensure that activity in affected sectors snapped back positively last month.
“As anticipated by business surveys, manufacturing activity strengthened in January, boosted by a strong recovery in automobile production to the extent that the sector has fully recovered from the impact of last autumn’s cyber-attack at Jaguar Land Rover.
“More concerningly, rising energy costs stemming from the conflict in the Middle East are likely to hamper the UK’s manufacturing sector over the remainder of the first quarter. If sustained, the addition of rising energy prices into the mix will result in a strong headwind for the UK economy, serving to suppress activity. Furthermore, the Bank of England may take the view that the uncertain outlook for inflation may limit its scope to provide any near-term assistance with a further seventh base rate cut in the near-term.”
Danni Hewson, AJ Bell head of financial analysis, comments:
“When looking at economic data it is understood that we’re looking back at what has happened, but that data normally gives us significant insight into what is to come.
“Whilst the latest UK GDP figures do continue to shed light on the weakness of the country’s economy, with construction particularly impacted despite the government’s big push to get Britain building, it can’t provide much clarity on what’s next.
“The war in Iran has completely changed the playing field and the playbook Rachel Reeves has been working from might need ripping up. Interest rates are no longer expected to keep falling, and instead borrowing costs may be set to increase as households once again have to deal with rising prices.
“An already weak housebuilding sector, which had shown signs of recovery in January, might have to rethink its plans for the year if fewer people feel confident in making a big move as mortgage costs edge up.
“If the UK economy was at a standstill in January, what will happen to it in the months ahead? If the oil price keeps climbing and we see spiralling fuel and energy costs, it could require the government to step in once again, even as the cost of its own borrowing edges up.
“The brightest spot in the latest ONS figures is from the recovery in manufacturing as JLR continued to bounce back from last autumn’s cyber-attack. But whilst the service sector managed to eke out some growth in the three months to January, the start of the year pointed to a still cautious consumer and highlighted the weakness in the labour market.
“Recruitment businesses have already reported falling profits as sluggish hiring dented their outlook for the year ahead, and the hospitality sector has been vocal in the challenges it’s faced as people continue to think hard about discretionary spend.
“Whilst many may temporarily find they’ve got a bit more in their pockets from next month, worries about the year ahead are likely to keep spending subdued. That’s going to have a knock-on to businesses trying to mitigate their own concerns.
“It’s ironic that fertiliser is one of the commodities caught in the shipping snarl up in the Strait of Hormuz, because those green shoots we’d all been hoping for this spring seem to be lacking the right fuel to grow.”
Derrick Dunne, CEO of YOU Asset Management, comments:
“The GDP figures this morning show some small signs of life, with activity picking up and some revisions upwards of data from late last year. But construction as a sector continues to appear in full retreat, a worrying signal for the economy.
“Construction tends to front run other parts of the economy. Families that buy homes tend to spend more on a variety of things associated with their lives, so the fact that housebuilding is in retreat offers us signals of weakness in various ways.
“The big question now is what happens with the data considering it won’t reflect the conflict in the Middle East. We’re due a rate decision next week and, until very recently, a cut was nearly nailed on. There’s a good chance the Bank of England will try to wait and see on developments.
“But with the mortgage market reacting strongly with pulling products and increasing rates the indication is the housing market is not in for relief in the near future. As previously mentioned, this feeds into the wider economy. If that is twinned with higher for longer inflation, then the UK could be in for a turbulent 2026.
“Anyone unsure what this could mean for their long-term financial plans should consider consulting with a financial planner.”
Richard Pike, sales and marketing director at Phoebus Software, comments:
“The UK economy performed worse than expected in January. The three-monthly figure shows growth of 0.2% boosted by production output, but growth was flat on a monthly basis. Worryingly things are only going to get worse as a result of the Iran conflict. This will have a significant impact on the economy, at least in the short-term, so it’s likely that growth will be affected over the coming months.
“The mortgage market is in turmoil at the moment, with products being pulled daily and rates rising to their highest since last summer. While some borrowers will be rushing to lock in rates, others will be putting their plans on hold.
“Construction output fell yet again and will be affected even further by the fallout from the war. With housing supply strangled and borrowing becoming more expensive, this doesn’t bode well for the market in the coming months. We can only hope that this conflict is resolved sooner rather than later.”
Kevin Brown, savings expert at Scottish Friendly, comments:
“Despite some encouraging data recently, today’s GDP reading is disappointing and shows the UK economy is struggling to build momentum in the face of numerous headwinds.
“Recent reports of rising output and business confidence had perhaps raised hopes that the economy was starting to turn the corner. Instead, the data suggest that growth remains patchy and inconsistent.
“A major economic drag remains consumer confidence – or the lack thereof – with households grappling with elevated interest rates and nearly five years of higher inflation. This is a real concern for an economy that relies so heavily on consumption.
“Unfortunately, the outlook has also darkened due to the conflict in the Middle East, which has already sent shockwaves through financial markets. Swap rates – which determine the cost of fixed-rate mortgages – have surged since the outbreak, prompting lenders to pull products and reprice deals higher.
“Oil prices have also been volatile, pushing up costs at the petrol pumps. If energy prices stay elevated, it raises the risk that the Bank of England leaves interest rates higher for longer, which would be a double blow for both businesses and households.
“Higher rates would be welcome news for those with cash savings, but any gains made on savings interest would likely be offset by higher inflation. It would also result in further pressure on households and businesses, which would weigh on growth.
“Much will depend on how the situation in the Middle East unfolds, but if tensions persist it could quickly turn into a particularly nasty and unwanted headwind for the UK economy.”
Guy Foster, Chief Strategist at RBC Brewin Dolphin said:
“This was a subdued GDP report, which has understandably been somewhat overshadowed by recent events.
“Today’s estimate suggests the economy didn’t grow during January, despite the helpful tailwinds of slowing inflation and recent cuts to interest rates. Weakness was quite broad, but it will be the stagnation of the large service sector that causes the most angst. Ordinarily, this wouldn’t be too concerning given the data can be revised and other indicators suggest that UK has been reasonably robust. However, in the context of a more challenging global environment due to conflict in the Middle East, this evidence of a weak start to the year will add to concerns about the UK’s outlook for 2026.
“The beneficial decline in inflation is at risk from the sharp rise in energy prices. The UK is vulnerable to rising gas prices, although it will take until July for the direct impact to reach households. Higher energy prices are likely to drain households’ incomes that could otherwise be used for discretionary spending. The two anticipated interest rate cuts have evaporated, and some of the impact of that is being felt already with higher swap rates, which are translating into elevated mortgage rates and providing a second dampener on domestic demand.”
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“UK markets opened lower this morning, weighed down by a softer‑than‑expected GDP print and ongoing tensions in the Middle East. The economy failed to grow at all in January, suggesting activity was already subdued even before the recent jump in energy prices began to bite. That’s starting to force a rethink of this year’s outlook, with previous 1.0% growth expectations now looking optimistic – with some scenarios pointing to closer to 0.6%, 0.4% or even 0.1%, depending on how long elevated energy costs stick around. While some temporary factors may have played a role, the broader concern is that rising energy prices from March onwards are likely to squeeze both household spending and business investment, potentially leading to a loss of momentum in growth in the months ahead, just as inflation risks remain elevated.”
John Wyn Evans, Head of Market Analysis at Rathbones, said:
“Although events in the Middle East render January’s GDP print somewhat academic, the fact that there was no growth over December (vs +0.2% expected), is worrisome, indicating limited momentum even before the inevitable headwinds materialise. Consumers and businesses face higher fuel prices and interest rates are now not expected to fall soon.
“In mitigation, some activity early in the year will have been curtailed by Storm Goretti and by the lack of water supplies in parts of Kent, but it’s hard to find many bright spots in the data. And even if there is some bounce back in February, March promises to be disappointing, especially as retail sales had been one of the better releases for January. It’s hard to see consumers becoming more confident in the current environment.
“In different circumstances, this news would have cemented the case for a base rate cut in either March or April, but that prospect is completely off the table now, at least as priced into Overnight Index Swap rates. In fact, traders see a greater probability of the next Bank of England move being an increase, although not imminently. The recent upward shift in 2 to 5 year bond yields will also mean that those either refinancing existing mortgages or taking out new ones will face higher rates, which one would expect to dampen housing market activity.
“With the Monetary Policy Committee meeting next week, we hope to get more guidance as to how they are viewing the current situation. On the one hand, higher energy prices will feed through to inflation and the Bank will want to ensure that long-term inflation expectations remain well anchored. If they start to rise, it could lead to an unwelcome inflationary wage/price spiral. Of some concern is that the 10-year inflation breakeven rate (the market-implied average inflation rate over the next decade) has risen from 2.9% at the beginning of the year to almost 3.5%. Admittedly, that’s well short of the 4.6% peak reached in March 2022 after Russia invaded Ukraine, but the Bank will still be on high alert.
“On the other hand, activity will be curtailed as spending is diverted towards energy from other areas of the economy. However, unlike the US Federal Reserve which has a dual mandate that covers both inflation and employment, the Bank of England’s overriding policy driver is its inflation target. That suggests at best a ‘wait and see’ attitude.
“And we could be waiting and seeing for a while. Almost everything depends on how the war in the Middle East plays out, especially the duration of shipping disruption through the Strait of Hormuz. For example, Capital Economics’ 2026 GDP growth forecast has a range from 0.1% to 0.6% vs its previous base case of 1%. The ‘fog of war’, indeed.
“We should also consider what this all means for the government’s finances. Weaker activity leads to lower tax revenue while higher bond yields increase the interest payments on debt, with index-linked liabilities exacerbating the situation. Whatever relief Chancellor Reeves will have felt when the OBR provided an increase in the fiscal headroom ahead of the recent Spring Statement will now have evaporated. She faces being unable to increase fuel duty as planned as well as potentially having to renew household energy subsidies. It’s hard to imagine more tax increases being palatable to close any fiscal gaps, but will the Labour Party have the gumption to cut spending anywhere? Maybe still being around to deliver next autumn’s Budget becomes a less enticing prospect.”
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