Britain’s economy failed to grow in January, surprising economists and raising fresh concerns about the country’s financial outlook as soaring global energy prices continue to weigh on businesses and consumers.
New figures released by the Office for National Statistics (ONS) showed that gross domestic product (GDP) remained unchanged during the month, falling short of analysts’ expectations of a 0.2% expansion.
The disappointing result came after the economy posted modest growth of 0.1% in December, suggesting the recovery has lost momentum.
Hospitality and Services Drag Economic Performance
The services sector, which makes up the largest share of the UK economy, showed little movement during January, with several industries experiencing notable declines.
Accommodation and food service businesses recorded one of the sharpest setbacks, shrinking by 2.7% as fewer customers visited restaurants, pubs and cafés.
Employment-related services also contributed to the slowdown, reflecting weaker activity across the labour market.
The decline in services offset gains elsewhere and became the biggest factor behind the economy’s lack of growth.
Manufacturing Remains Weak Despite Construction Gains
Britain’s production industries continued to struggle during the opening month of the year.
Manufacturing, mining and energy production collectively contracted by 0.1%, highlighting ongoing pressures facing industrial businesses.
Construction offered one of the few bright spots, growing by 0.2% as activity in the sector continued to edge higher.
However, the modest improvement in construction was not enough to lift overall economic output into positive territory.
Rising Energy Costs Add Fresh Pressure
Economists warned that the latest GDP figures may only represent the beginning of broader economic challenges, with global energy markets becoming increasingly volatile.
Oil prices have climbed above $100 per barrel after rising by more than 25% since fighting between the United States, Israel and Iran intensified two weeks ago.
The sharp increase is expected to push up energy bills and operating costs for businesses while adding further pressure to household budgets.
Analysts noted that Britain’s economy had already been showing signs of weakness before the latest surge in oil prices.
Inflation Risks Cloud Interest Rate Outlook
The jump in energy prices has complicated expectations for the Bank of England’s next policy decision.
Many investors had anticipated that policymakers could begin lowering interest rates, but persistent inflationary pressures linked to higher oil prices may force the central bank to keep borrowing costs elevated for longer.
If energy costs remain high, hopes of an imminent rate cut are likely to fade as inflation risks increase.
Economists Warn Recession Cannot Be Ruled Out
Several economists cautioned that an extended period of elevated oil prices could significantly weaken the UK’s economic prospects.
Andrew Goodwin, chief UK economist at Oxford Economics, said a worst-case scenario in which crude oil climbs to around $140 per barrel could push UK inflation from approximately 3% to 5% before the end of the year.
Such an outcome, he warned, could leave the Bank of England with little choice but to raise interest rates again, increasing the likelihood of a mild recession.
Reeves Defends Government’s Economic Strategy
Despite the disappointing figures, Chancellor Rachel Reeves insisted the government’s economic approach remains on course.
She acknowledged that further work is needed to strengthen the economy but maintained that Labour’s plan provides the right direction for long-term growth.
Reeves is expected to outline the government’s broader economic strategy in a speech next week as pressure grows for ministers to introduce emergency measures to help households and businesses cope with rising energy costs.
