Today’s GDP report shows the UK economy entered the energy crisis with no momentum, warns Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK.

Pugh explains:

“Zero growth in January highlights just how little momentum the economy had coming into the energy crisis. That makes it more likely that growth will dip sharply below 1% this year, even if there is a swift resolution to the crisis.

“Stagnation in January would make us worried about growth this year, even without the energy price shock that will start to show up in the March data. Indeed, the big improvement in survey data at the start of the year doesn’t seem to have carried over into stronger activity. Improved retail sales were offset by a sharp drop in hospitality activity, suggesting consumers are still cautious.

And the moribund employment and housing market clearly showed up in a 5.7% drop in employment activities, and a 3.9% drop in leasing activities. We had been expecting both these factors to improve over the rest of the year, but the sharp rise in borrowing costs and uncertainty makes that unlikely now.

The UK’s failure to grow in January is a “worrying start” to 2026, reports Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research (NIESR).

Jimenez-England says:

“GDP did not grow in January, despite surveys pointing to a revival in business sentiment early in the New Year. Services stagnated while production entered its second month of contraction.

This is a worrying start to the quarter, given that the early-year improvement in business confidence is likely to be short-lived as global disruption linked to the Iran War hits the UK economy.

We expect the impact on growth in the first quarter to be limited, but if energy prices remain elevated for the rest of the year it could reduce GDP growth by around 0.2 percentage points in 2026.”

Chancellor of the Exchequer Rachel Reeves has responded to this morning’s GDP report, saying:

“Our economic plan is the right one, but I know there is more to do.

In an uncertain world, we are building a stronger and more secure economy by cutting the cost of living, cutting national debt and creating the conditions for growth to make all parts of the country better off.”

There was also a worrying decline in recruitment activity in January.

The ONS report there was a 5.7% fall in employment activities during the month – suggesting a decline in hiring by UK businesses at the start of this year.

The fall in employment activities was the largest negative contribution from a single industry to both services output and real GDP growth in January.

Many employment groups have blamed the government’s decision to increase employer national insurance contributions, and the minimum wage, for hitting recruitment.

It might even be a sign that artificial intelligence is now hitting the recruitment market, wiping out some job opportunities….

A slump in the property sector hurt the economy over the three months to January.

The ONS reports that there was a 7.1% drop in “real estate activities on a fee or contract basis” over the quarter.

Over the three months to January, the UK economy grew by 0.2%, up from growth of 0.1% in the three months to December.

That’s partly because activity picked up at JLR’s car factories, after a damaging cyber attack that halted production last September.

ONS director of economic statistics, Liz McKeown, says:

“Growth ticked up slightly in the latest three months, partly reflecting the recovery of car manufacturing, following the cyber incident in the Autumn. Within services, which also increased, wholesale continued to rebound from a weak summer. However, the overall picture remains subdued, with no growth in the latest month.

“There was another large fall in the construction industry in the latest three months, with continued contraction in housebuilding.”

Newflash: The UK economy stagnated in January, stumbling even before the Iranian war drove up energy prices.

The Office for National Statistics reports that UK GDP was unchanged in January, dashing hopes of 0.2% growth.

It says that in January:

• Monthly GDP showed no growth, following growths of 0.1% in December and 0.2% in November 2025.

• Services showed no growth, production fell by 0.1%, and construction grew by 0.2% in January 2026.

That suggests the economy was weaker than thought even before the threat of an energy price shock.

Brent crude oil is still trading over $100 a barrel this morning, having climbed since the Iran war started almost two weeks ago.

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

A lot has changed since January – with conflict in the Middle East driving oil prices to $100 a barrel, disrupting supply chains and fuelling stagflation fears.

So the latest gauge of the health of the British economy may be out of date even before it is delivered to us this morning.

The latest UK GDP report, due at 7am, is expected to show a pick-up in growth in the first month of 2026. Economists predict the economy will have grown by 0.2% in the month, up from 0.1% in December.

In more normal times, Rachel Reeves would be able to trumpet this as a sign that the recovery was gaining ground. But fears of an energy price shock means ministers should temper any enthusiasm.

Sanjay Raja, Deutsche Bank’s chief UK economist, explains:

After a disappointing end to the year, we expect the economy to jump to a flying start in Q1-26. Indeed, activity data has thus far been encouraging. And we expect some catch up in the first couple of months of the year, after a weak Q4-25.

The upcoming GDP report won’t be front and centre for markets, however. Events in the Middle East continue to overshadow lagged data.

The unfolding energy shock will have important implications for inflation and thus real disposable incomes. Some signs of stabilisation in the labour market now look fragile. The path for interest rate cuts is now also in doubt. In short, uncertainty has picked up yet again. Growth risks are now almost single-handedly skewed to the downside - with inflation risks skewed to the upside.

The agenda

• 7am GMT: UK GDP report for January

• 7am GMT: UK trade report for January

• 10am GMT: Eurozone industrial production report for January

• 12.30pm GMT: US PCE inflation measure

• 2pm GMT: US JOLTs Job Openings report

• 2pm GMT: University of Michigan’s survey of US consumer confidence