The UK economy stagnated in January, marking a tepid start to the year even before the conflict in the Middle East triggered a global energy shock.
Figures from the Office for National Statistics (ONS) fell short of economists’ expectations, showing no growth, despite a Reuters poll forecast of 0.2%.
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.
Economic growth stood at just 0.1% in both the third and fourth quarters of last year, as households and businesses grappled with persistently high interest rates, the fallout from the US trade war, and uncertainty over potential tax increases announced in November’s budget.
The statistics cover the period before the launch of the start of the US-Iran war which has caused the biggest ever disruption to the supply of oil in history, according to the International Energy Agency.
The recent surge in oil and gas prices adds new risks for the UK economy, which the Bank of England had projected would grow by 0.3% in the first quarter before the war began.
Liz McKeown, director of economic statistics at the ONS, said: “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.”
Read more: Bets mount on Bank of England raising interest rates as oil price surges
Oil prices exceeded $100 a barrel on Thursday for the second time this week, as Iranian attacks on energy facilities across the region overshadowed a large release of government reserves.
Analysts said sustained higher energy prices could push inflation higher, undermining expectations of a Bank of England interest rate cut next week. Financial markets anticipate that Threadneedle Street could be forced to raise borrowing costs later this year.
Before the outbreak of hostilities, the BoE had been widely expected to cut borrowing costs at its next meeting on 19 March, following further progress in reducing inflation from the current level of 3%.
But inflationary pressures have surged as energy prices have become less temporary amid the continuation of the war and growing damage to production facilities. As in 2022, after Russia’s invasion of Ukraine, analysts warn that higher energy costs are likely to be passed through to consumers, raising the prices of most goods and services due to increased production and delivery costs.
