The UK economy recorded no growth in January 2026, official data showed Friday, dashing hopes for a stronger start to the year. The Office for National Statistics reported gross domestic product flat month-on-month, following a 0.1 percent rise in December 2025. Economists surveyed by Reuters had anticipated a 0.2 percent expansion.

In the three months to January, GDP grew 0.2 percent compared with the prior three months, up from 0.1 percent in December. Year-on-year, the economy expanded 0.9 percent in that period, with January 2026 output 0.8 percent above January 2025 levels. The data painted a subdued picture before the recent escalation in the US-Israel conflict with Iran sent energy prices surging.

Services, which dominate the economy, showed no monthly growth in January after upward revisions to prior months. Output rose 0.2 percent over the three months to January. Key drags included a 1.8 percent fall in accommodation and food services, reflecting cutbacks in eating out, and a 2.3 percent drop in administrative and support services, led by employment agencies. Production declined 0.1 percent monthly but grew 1.3 percent over three months, buoyed by manufacturing and utilities earlier. Construction edged up 0.2 percent, ending three months of declines, thanks to repair and maintenance work.

The flat reading caps a year of modest expansion, with full-year 2025 GDP up 1.3 percent from 1.1 percent in 2024, though below initial forecasts. Momentum slowed in late 2025 amid budget uncertainty, rising employer taxes, and national living wage hikes, contributing to higher unemployment—the highest in five years.

Analysts highlighted pre-existing fragility now compounded by geopolitical risks. Oil prices topped $100 per barrel, up over 25 percent since the Iran conflict began two weeks ago, threatening to stoke inflation and delay Bank of England rate cuts. Capital Economics' Paul Dales cut his 2026 growth forecast to as low as 0.1 percent in a severe scenario. Deutsche Bank's Sanjay Raja warned of squeezed incomes curbing spending and investment.

Chancellor Rachel Reeves acknowledged challenges, stating, "Our economic plan is the right one, but I know there is more to do." She plans a speech next week on Labour's strategy, amid calls for energy support. Prime Minister Sir Keir Starmer noted the war's potential to hit households via higher fuel and heating costs, despite the energy price cap holding until July.

KPMG's Yael Selfin said growth would remain elusive, with higher borrowing costs and prolonged high rates weighing on businesses. The ONS cautioned that early estimates are provisional, with revisions possible.