UK Economy Stalls In January As Momentum Slows Into Year-End
Image: HarryDaniels
- January output undershoots expectations - Services stabilise, but construction falls again - Economists trim growth outlook - Middle East conflict complicates BoE decision
LONDON – The latest report from the Office for National Statistics showed UK economic activity remained subdued at the start of the year, continuing the pattern seen over recent months.
In the three months to January, GDP rose 0.2%, a tenth below forecasts but higher than the 0.1% recorded in December and an improvement on the flat reading in the three months to November. On the month, output was unchanged, missing expectations for a 0.2% rise and slowing from the 0.1% gain previously.
Over the three-month period, services output climbed 0.2% versus the flat reading in the three months to December but a tenth below forecasts. Production increased 1.3%, up from 1.2% previously. Partially offsetting these gains was construction, which fell 2.0% over the period following a 0.9% decline in December, extending its recent downward trend.
Liz McKeown, ONS director of economic statistics, said the modest increase partly reflected a recovery in car manufacturing following a cyber incident in the autumn.
Services activity rose in half of the sector’s 14 subsectors, led by wholesale and retail trade. Film industry production also contributed to the gains. However, declines in real estate activities and accommodation and food services weighed on the sector overall.
Source: Gross domestic product (GDP) monthly estimate from the Office for National Statistics
Downgrading of growth prospects
Allan Monks of JP Morgan said that following the disappointing January print, the bank had lowered its Q1 GDP growth forecast to 1.2% from 1.6% annualised.
“We had been anticipating a lift to growth early this year on the basis of some evidence suggesting there has been residual seasonality affecting Q1 GDP figures in recent years. That now looks less likely, although growth could still rebound during the remainder of the quarter.”
The bank made the revision despite more encouraging signals from timelier survey data, including the latest PMI readings.
February’s S&P Global UK Composite PMI was unchanged from January, remaining comfortably in expansion territory above the 50-point mark. The research firm said the seasonally adjusted output index registered 53.7 in February, signalling a further solid expansion of business activity across the private sector. The reading marked 10 consecutive months of growth.
Matt Swannell, chief economic adviser to the EY ITEM Club, said the current quarter should see stronger GDP growth than the second half of 2025.
“Solid activity growth in November and December provided a supportive launchpad for quarterly growth in Q1, and the monthly pattern suggests residual seasonality, with recent years recording stronger readings in the first quarter that are followed by an abrupt slowdown.”
However, he cautioned that the outlook for activity in 2026 remains weaker.
“The momentum behind real household income growth was already cooling, but higher inflation resulting from the conflict in the Middle East will exacerbate the slowdown.”
The EY ITEM Club has also cut its already below-consensus forecast for 2026 GDP growth, warning that even the current projection could prove too optimistic if oil and gas prices rise further.
Fog of war complicates rate path
This coming Thursday, the Bank of England’s Monetary Policy Committee is scheduled to announce its latest policy decision. Investors had been considering the possibility of a further quarter-point rate cut at the meeting. However, the start of the Middle East conflict has added another layer of uncertainty to expectations.
Sanjay Raja of Deutsche Bank said, “A couple of weeks ago, a March rate cut seemed inevitable. Fast forward to today, however, and geopolitical developments have introduced serious upside risks to inflation. The disinflation path no longer looks assured.
“Inflation expectations could ratchet higher given the sensitivity of household expectations to energy prices. We expect the MPC to adopt a wait-and-see approach until the dust settles following the Iran shock.”
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- January output undershoots expectations
- Services stabilise, but construction falls again
- Economists trim growth outlook
- Middle East conflict complicates BoE decision
By Harry Daniels
LiveSquawk News
@HarryDaniels71
13 March 2026 | 11:30 GMT
LONDON – The latest report from the Office for National Statistics showed UK economic activity remained subdued at the start of the year, continuing the pattern seen over recent months.
In the three months to January, GDP rose 0.2%, a tenth below forecasts but higher than the 0.1% recorded in December and an improvement on the flat reading in the three months to November. On the month, output was unchanged, missing expectations for a 0.2% rise and slowing from the 0.1% gain previously.
Over the three-month period, services output climbed 0.2% versus the flat reading in the three months to December but a tenth below forecasts. Production increased 1.3%, up from 1.2% previously. Partially offsetting these gains was construction, which fell 2.0% over the period following a 0.9% decline in December, extending its recent downward trend.
Liz McKeown, ONS director of economic statistics, said the modest increase partly reflected a recovery in car manufacturing following a cyber incident in the autumn.
Services activity rose in half of the sector’s 14 subsectors, led by wholesale and retail trade. Film industry production also contributed to the gains. However, declines in real estate activities and accommodation and food services weighed on the sector overall.
Allan Monks of JP Morgan said that following the disappointing January print, the bank had lowered its Q1 GDP growth forecast to 1.2% from 1.6% annualised.
“We had been anticipating a lift to growth early this year on the basis of some evidence suggesting there has been residual seasonality affecting Q1 GDP figures in recent years. That now looks less likely, although growth could still rebound during the remainder of the quarter.”
The bank made the revision despite more encouraging signals from timelier survey data, including the latest PMI readings.
February’s S&P Global UK Composite PMI was unchanged from January, remaining comfortably in expansion territory above the 50-point mark. The research firm said the seasonally adjusted output index registered 53.7 in February, signalling a further solid expansion of business activity across the private sector. The reading marked 10 consecutive months of growth.
Matt Swannell, chief economic adviser to the EY ITEM Club, said the current quarter should see stronger GDP growth than the second half of 2025.
“Solid activity growth in November and December provided a supportive launchpad for quarterly growth in Q1, and the monthly pattern suggests residual seasonality, with recent years recording stronger readings in the first quarter that are followed by an abrupt slowdown.”
However, he cautioned that the outlook for activity in 2026 remains weaker.
“The momentum behind real household income growth was already cooling, but higher inflation resulting from the conflict in the Middle East will exacerbate the slowdown.”
The EY ITEM Club has also cut its already below-consensus forecast for 2026 GDP growth, warning that even the current projection could prove too optimistic if oil and gas prices rise further.
This coming Thursday, the Bank of England’s Monetary Policy Committee is scheduled to announce its latest policy decision. Investors had been considering the possibility of a further quarter-point rate cut at the meeting. However, the start of the Middle East conflict has added another layer of uncertainty to expectations.
Sanjay Raja of Deutsche Bank said, “A couple of weeks ago, a March rate cut seemed inevitable. Fast forward to today, however, and geopolitical developments have introduced serious upside risks to inflation. The disinflation path no longer looks assured.
“Inflation expectations could ratchet higher given the sensitivity of household expectations to energy prices. We expect the MPC to adopt a wait-and-see approach until the dust settles following the Iran shock.”