The United Kingdom’s economy showed no growth in January, preliminary Office for National Statistics figures published on March 13, 2026 indicate. The flat reading followed 0.1% monthly growth in December and comes after a weak 0.1% expansion in the fourth quarter of 2025. The services sector, the largest part of the economy, recorded zero growth while production slipped and construction grew modestly. The report arrived as global energy prices surged after the U.S.-Iran conflict, intensifying concerns about inflation and interest-rate prospects.
Key takeaways
- January GDP was flat month-on-month, missing a Reuters-polled forecast of 0.2% growth.
- The economy expanded 0.1% in December 2025 and rose 0.1% in Q4 2025, underscoring a weak overall start to the year.
- Services showed no growth in January; production fell by 0.1% and construction rose by 0.2%, according to the ONS release.
- Markets moved quickly after the data and geopolitical shock: the pound fell about 0.4% versus the U.S. dollar and was unchanged against the euro.
- Short-term gilt yields were little changed overall; 2-year gilt yields fell by 3 basis points after the release.
- LSEG market pricing implied only a 1.83% chance of a Bank of England rate cut at the March 19 meeting.
- Analysts warn that higher energy prices from the U.S.-Iran war will squeeze real incomes and could constrain spending, investment and hiring.
Background
The U.K. entered 2026 after a tepid finish to 2025, with growth patterns that left policymakers and markets expecting a modest rebound at the turn of the year. The domestic economy is heavily service-oriented, making consumer spending and business services key drivers of headline GDP. In her Spring Statement earlier in March, Finance Minister Rachel Reeves presented growth as validation of the government’s economic plan, though the statement predated the January preliminary data and the subsequent geopolitical shock.
The country is also an energy importer, so swings in oil and gas prices feed into domestic inflation and household budgets. Monetary policy settings have been sensitive to inflation risks since 2021, and the Bank of England faces a trade-off between supporting activity and containing price pressures. Before the latest conflict-driven price moves, many market participants had been debating the timing of potential rate cuts; recent developments have shifted those calculations.
Main event
ONS preliminary figures released on March 13, 2026 show monthly GDP was unchanged in January. The services sector — which accounts for the largest share of U.K. output — registered no expansion, while manufacturing and other production activity contracted by 0.1%. Construction posted a small gain of 0.2%, but that was insufficient to offset weakness elsewhere.
Markets reacted to the combination of an underwhelming domestic report and a surge in energy prices after the outbreak of the U.S.-Iran war. Short-term gilt yields were largely stable across most of the curve, with a small 3 basis-point drop in two-year yields, reflecting a nuanced market read that balances growth disappointment against renewed inflation risks. Sterling slid roughly 0.4% versus the U.S. dollar on the day.
Mortgage borrowing costs in the U.K. rose as lenders priced in a higher risk of sustained global energy-driven inflation, and government borrowing costs experienced volatility amid the same moves. Market-implied odds of a Bank of England rate cut on March 19 diminished sharply, reflecting the changed inflation outlook and heightened uncertainty from external shocks.
Analysis & implications
The immediate implication of a flat January is that the modest momentum policymakers hoped to see at the start of 2026 is weaker than anticipated. When growth stalls while energy costs jump, real disposable incomes are squeezed. That tends to reduce consumer spending, which is the primary engine of services-sector expansion, and can feed through into slower business investment and hiring.
For the Bank of England, the data complicate the policy picture. A still-sluggish economy would normally argue for looser policy, but a sudden rise in energy-driven inflation raises the risk that cutting rates too soon would allow inflation expectations to drift higher. Market pricing that now almost rules out an imminent cut reflects that tension.
The fiscal outlook is also affected: weaker near-term growth can reduce tax receipts and raise welfare spending needs, shrinking the Chancellor’s fiscal headroom. Higher government borrowing costs during periods of market stress would further tighten constraints on discretionary fiscal support. Internationally, slower U.K. growth combined with commodity-driven inflation could weigh on European trade partners and create knock-on effects through financial markets.
Comparison & data
| Period | Monthly GDP |
|---|---|
| December 2025 | +0.1% |
| January 2026 | 0.0% |
| Q4 2025 (quarter) | +0.1% |
The table summarizes the latest official snapshots: a small 0.1% gain in December, no monthly growth in January and a weak 0.1% rise across Q4 2025. Taken together, these numbers point to a fragile, low-growth environment that is vulnerable to external price shocks. Analysts view the January flatline as evidence that upside momentum was limited even before the recent escalation in Middle East tensions.
Reactions & quotes
Economists and professional bodies reacted quickly to the data and the broader geopolitical backdrop, highlighting the policy dilemma.
“This was not what the doctor ordered,”
Sanjay Raja, Chief UK Economist, Deutsche Bank
Deutsche Bank’s brief response emphasised that expectations for a stronger start to 2026 have weakened and that the Iran conflict has added fresh headwinds to growth prospects.
“Any lingering hopes of an imminent Bank of England cut have been extinguished,”
Suren Thiru, Chief Economist, Institute of Chartered Accountants in England and Wales
The professional body warned that the energy shock and supply disruptions could push the U.K. closer to stagflation territory and reduce fiscal flexibility for the Chancellor.
Unconfirmed
- Direct causation between the U.S.-Iran conflict and specific mortgage rate rises remains inferred from market moves rather than established as a causal chain by an official regulator.
- Exact timing and magnitude of Bank of England policy moves remain unconfirmed; market-implied odds can change rapidly with new data or geopolitical developments.
Bottom line
January’s flat GDP reading underlines that the U.K. economy entered 2026 with weak momentum. The services sector’s stagnation, together with falling production, highlights the fragility of near-term growth and raises questions about how quickly activity can recover.
The outbreak of the U.S.-Iran war and the resulting rise in energy prices have shifted the policy and market outlook: higher inflation risk reduces the likelihood of an imminent Bank of England rate cut and increases pressure on household budgets and government finances. Close attention to incoming inflation data, wage growth and further market moves will determine whether the U.K. slips into a protracted low-growth, high-inflation scenario or stabilises as external pressures ease.
Sources
- CNBC — news report summarising ONS figures and market reaction
- Office for National Statistics (ONS) — official statistics portal
- Deutsche Bank — economist commentary and research note
- Institute of Chartered Accountants in England and Wales — professional body commentary
- LSEG — market pricing and data provider