The UK economy failed to grow in January

The UK economy was flat in January as growth slowed, even before the US-Iran war brought a global energy price shock.

Preliminary figures published on Friday fell short of the 0.2% month-on-month gross domestic product growth forecast by economists polled by Reuters. The economy grew by 0.1% in December.

In the final quarter of 2025, the UK economy grew a weaker than expected 0.1%.

Britain’s Office for National Statistics said the strong services sector showed no growth in January, while manufacturing shrank 0.1% and construction rose 0.2%.

In her annual spring statement earlier this month, UK finance minister Rachel Reeves touted the growth as a sign the government had “the right economic plan for the country”.

However, fresh figures show evidence of a fragile British economy, which is now under further pressure following the start of the US-Iran war.

The conflict has sparked a rally in oil and gas prices, raised concerns about the inflation outlook for energy importers such as the UK and prompted market watchers to reassess the possibility of an interest rate cut by the Bank of England later this month.

In the UK, mortgage rates have risen amid the escalating conflict, while government borrowing costs have seen wild swings.

As of Friday morning, markets were now pricing in just a 1.83% chance of a rate cut by the central bank on March 19, according to LSEG data.

UK government bonds, known as gilts, were little changed on the upper curve after Friday’s data release. short term 2 year old gilt Yields fell by 3 basis points.

The British pound It fell 0.4% against the US dollar and was flat Against the Euro.

In a note following the GDP update, Deutsche Bank’s chief UK economist Sanjay Raja said the report was “not what the doctor ordered”.

“We, along with others, expect the UK economy to bounce back strongly after the end of 2025,” he said. “Our expectations for a strong start to the year are low. And with the Iran conflict bubbling in the background, further headwinds will drag down UK growth.”

Rapidly rising fuel prices will squeeze real disposable income, constrain spending, investment and corporate hiring plans, Raja said.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said any remaining hopes of an upcoming BoE rate cut had been “extinguished” despite the UK economy stalling.

“Any lingering momentum in the economy from the Middle East conflict has now evaporated with the energy crisis and supply chain disruption, pushing both the UK closer to stagnation and eroding the Chancellor’s fiscal headroom,” he said.

“While these disappointing figures raise fears over the health of the economy, there is no hope of an interest rate cut next week, as rate-setters remain deeply concerned by the cascade of new inflation risks posed by the conflict.”