"If this is the best the UK can manage before a new energy price shock hits, then we are all in trouble"
- Chris Beauchamp - IG
The UK economy grew by 0.2% in the three months to January 2026, according to figures from the Office for National Statistics, building on the 0.1% expansion recorded in the three months to December 2025. The November figure was revised upward from a contraction of 0.1% to flat growth, offering a small but notable improvement to the recent trend.
Production output delivered the strongest contribution, rising 1.3% over the period. Services output added 0.2%, while construction output fell 2.0%, with wet weather cited as a factor weighing on site activity during January.
"The overall picture remains subdued, with no growth in the latest month," said Liz McKeown, director of economic statistics at the ONS.
The data lands below the expectations of some economists, who had anticipated a more decisive upturn following the end of pre-budget speculation last November. Instead, the rolling three-month figure has ticked upward only marginally, suggesting underlying momentum remains fragile.
Iran conflict reshapes the UK economic outlook
Any optimism about a strengthening growth path has been significantly undermined by geopolitical developments. The US-Israeli attack on Iran at the end of February has injected fresh uncertainty into the UK economic outlook, with economists now warning of a potential new wave of energy-led inflation.
Chris Beauchamp, Chief Analyst at IG, commented, "If this is the best the UK can manage before a new energy price shock hits, then we are all in trouble. Yet another miserable growth figure confirms the anaemic state of the economy, and one that is ill-placed to weather a fresh storm that will wallop consumer spending and government tax receipts, with the picture worsened by the UK's higher energy costs."
Derrick Dunne, CEO of YOU Asset Management, comments, “The GDP figures this morning show some small signs of life, with activity picking up and some revisions upwards of data from late last year. But construction as a sector continues to appear in full retreat, a worrying signal for the economy.
“Construction tends to front-run other parts of the economy. Families that buy homes tend to spend more on a variety of things associated with their lives, so the fact that housebuilding is in retreat offers us signals of weakness in various ways.
“The big question now is what happens with the data considering it won’t reflect the conflict in the Middle East. We’re due a rate decision next week and, until very recently, a cut was nearly nailed on. There’s a good chance the Bank of England will try to wait and see on developments.
“But with the mortgage market reacting strongly with pulling products and increasing rates the indication is the housing market is not in for relief in the near future. As previously mentioned, this feeds into the wider economy. If that is twinned with higher for longer inflation, then the UK could be in for a turbulent 2026.
“Anyone unsure what this could mean for their long-term financial plans should consider consulting with a financial planner.”
Lindsay James, investment strategist at Quilter, said, “The UK economy has started as it is predicted to go on – sluggish and unexciting, with global risks threatening to derail the government in its quest to boost the rate of growth.
"The Office for National Statistics reported that January saw no growth whatsoever, with the three-month rate coming in at 0.2%, up marginally from the previous quarterly figure. Services returned to growth in those three months, but quickly stagnated again in January, a potential ongoing concern given the UK’s reliance on that sector.
"The construction sector also continued its contraction, falling a further 2.0% in the three months to January. The numbers reflect an economy where spending is focused on needs rather than wants. The fact that car repairs were one of the areas called out for growth, at a time when the UK is blighted by potholes, says a lot. Looking more deeply, consumers are reining in on the ‘fun’ spending – accommodation and recreation are firmly in the red. This suggests confidence remains low, amid rising unemployment, and before events in the Gulf are even taken into account."
