The UK economy unexpectedly failed to grow in January, with a sharp fall in spending at restaurants and cafés highlighting continued pressure on consumer demand.
According to figures from the Office for National Statistics (ONS), gross domestic product (GDP) showed zero growth during the month, weaker than economists had forecast and following modest growth of 0.1 per cent in December.
The ONS said the broader economic picture remains “subdued”, while analysts described the data as a disappointing start to the year.
GDP, which measures the total economic output of businesses, governments and households, is widely used as the main indicator of a country’s economic performance.
Retail and hospitality pressure continues
The downturn in retail and hospitality activity suggests consumer spending remains fragile as households continue to manage higher living costs and economic uncertainty.
Growth had already been slowing in the second half of last year as consumers held back spending amid concerns about possible tax rises and rising unemployment.
Across the wider economy, production output fell by 0.1 per cent in January, while construction provided a small boost, growing by 0.2 per cent.
Looking at a less volatile measure of activity, the economy grew by 0.2 per cent in the three months to January, slightly stronger than the 0.1 per cent growth recorded in the three months to December.
Energy shock risks further pressure
The latest data also comes against a backdrop of rising geopolitical uncertainty following the outbreak of war between the US-Israel alliance and Iran, which has triggered a sharp rise in global energy prices.
Prime Minister Sir Keir Starmer warned earlier this week that the longer the conflict continues, the more likely it is to impact the UK economy.
While households covered by Ofgem’s energy price cap will be protected from higher bills until July, the impact of rising fuel costs is already being felt through higher petrol prices and heating oil costs.
Economists warn the situation could push inflation higher again, potentially delaying expectations that price growth would fall back to the Bank of England’s 2 per cent target this spring.
If the conflict continues, analysts say the combination of higher energy costs and economic uncertainty could weaken household spending further and threaten the government’s priority of boosting growth.
Interest rate outlook shifts
Before the escalation in the Middle East, many economists expected the Bank of England to begin cutting interest rates as early as March. However, the latest developments have led many to predict the central bank will hold rates when it meets next week.
Yael Selfin, chief economist at KPMG UK, said the economy had started the year on weak footing and warned that growth may remain difficult to achieve.
“The UK economy started the year on the back foot and activity is expected to weaken further amid sharply rising energy prices,” she said.
Selfin added that rising government borrowing costs and persistent inflationary pressures could keep interest rates higher for longer, creating additional headwinds for businesses.
“With expectations for weaker growth alongside rising costs, firms are likely to scale back investment plans,” she said.
Political debate over economic strategy
Chancellor Rachel Reeves said the government remained committed to its economic strategy despite the challenging outlook.
“Our economic plan is the right one, but I know there is more to do,” she said, as reported by the BBC..
“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.”
Shadow chancellor Sir Mel Stride criticised the government’s economic approach, arguing it had left the UK vulnerable to global shocks.
He said ministers should cut fuel taxes, support North Sea oil and gas production and introduce stronger measures to reduce borrowing and welfare spending.
Growth forecasts downgraded
The weak start to the year follows a recent downgrade to the UK’s economic outlook.
In its Spring Statement, the Office for Budget Responsibility reduced its forecast for UK economic growth in 2026 to 1.1 per cent, down from a previous estimate of 1.4 per cent.
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