Zero growth in January as economic outlook clouded by war-linked inflation threat

The UK economy grew by 0.2% in the three months to January but with zero growth that month, according to official figures, as the prospects ahead are clouded by uncertainty due to the effects of the Middle East war.

Early estimates from the Office for National Statistics (ONS) pointed to better performances from industrial production and services during January, though wet weather further curbed output for construction.

It marked a slight tick up for the rolling three-month figure though it has undershot expectations among some economists that growth would strengthen markedly following the end of pre-budget speculation last November.

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The ONS director of economic statistics, Liz McKeown, said of the data: "The overall picture remains subdued, with no growth in the latest month."

The outlook for this year has been called into deeper question ever since the US and Israel attacked Iran at the end of February.

Economists fear a new wave of energy-led inflation in the UK and across the world.

Oil and natural gas costs have spiked in response to the growing disruption to production and deliveries caused by Iranian attacks on Gulf nations' energy infrastructure.

The regime has effectively closed the Strait of Hormuz shipping lane, taking a fifth of global supplies away from the market.

Brent crude oil costs have risen by more than 50% this month while wholesale natural gas prices for UK delivery are up by 70%.

The impact has been immediate - with a leap in fuel costs set to be the first war-related drag on the economy - but the full effects will be staggered.

Price hikes were seen at the pumps as soon as financial markets reflected the initial raw energy price spike.

Households seeking new fixed-rate energy deals are also already paying more, while average new two and five-year fixed mortgage rates have shot back above 5% this week.

The latter increases are due to growing expectations that the Bank of England may be forced to raise Bank rate this year in a bid to stop the fresh price pressures becoming engrained in the economy.

Before the war started, the Bank was widely tipped to cut borrowing costs at its next meeting on 19 March due to further progress in bringing inflation down from its current level of 3%.

But now, inflationary pressures have surged as energy price hikes start to look a bit less temporary as the war continues and damage to energy production facilities grows.

Like what happened in 2022 when Russia invaded Ukraine, higher energy prices are likely to be passed down supply chains widely.

These will feed into the cost of most goods and services through elevated production and delivery costs.

Much will depend on the duration of the war and the energy industry's ability to get back on its feet across the Middle East.

Read more:
How Iran can block the Strait of Hormuz
Why Iran war will help fund Russia

Professor Joe Nellis, economic adviser at the advisory firm MHA, said of the latest ONS data: "The UK economy flatlined in January, signalling an underwhelming start to the year.

"But economic expectations have been thrown out the window by events in the Middle East, as threats of supply chain disruption and rising inflation rear their head again.

"Growing inflation will not only hit consumers struggling from the cost-of-living crisis but also has the potential to seriously undermine the Government's plan for growth."

(c) Sky News 2026: Zero growth in January as economic outlook clouded by war-linked inflation threat