Bleak economic data shows UK plc in trouble well before Middle East crisis

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Even before Donald Trump’s Operation Epic Fury on Iran unleashed higher oil prices, threatening the outlook for growth and inflation, the UK economy was flatlining.That’s the bleak message in the latest data from the Office for National Statistics (ONS), which showed zero GDP growth in January.On the less volatile three-monthly measure, growth was 0.2% – a slight improvement on 0.1% in the three months to December.

But the data will not help Rachel Reeves’s argument that her policies have put the economy in a stronger position to withstand whatever is headed the UK’s way,The sectoral breakdown gives little cause for optimism either,The important services sector grew by 0,2% in the three months to January, helped by strong expansion in wholesale and retail; but within that, in a sign of the rapidly weakening labour market, “employment activities”, such as recruitment consultancy were down by 5,7%.

The healthier-looking 1.2% growth in production – which included manufacturing – was flattered by the recovery of Jaguar Land Rover from its shutdown after a cyber-attack.And output from the construction sector fell by a hefty 2% in the three months to January, the ONS said.Construction is key to Labour’s promise to be “builders, not blockers”, with billions of pounds set aside for infrastructure projects and a pledge to build 1.5m homes in this parliament.

There was a small monthly increase in construction output of 0.2% in January; but that “came solely from a rise in repair and maintenance”, with new work down 2%.None of this is likely to inspire confidence that the economy is ready to weather the coming storm.Oil prices have been zigzagging around the $100 a barrel mark for several days, and with the strait of Hormuz still effectively closed as a result of Iran’s reprisals against US attacks, look likely to stay high for some time.That will hit consumers rapidly via higher petrol prices, and could set in chain an increase in utility bills, when the next quarterly household energy price cap comes into force in July.

The Bank of England will also fret that costly oil will feed through into wider inflation across the economy.Labour had expected more interest rate cuts in the months to come, helping to boost consumer confidence and make it cheaper for businesses to borrow.But markets are now certain the monetary policy committee will keep rates on hold at 3.75% when it meets next Thursday; and unconvinced there will be any cuts at all in 2026.With business surveys relatively strong, Reeves’s team had also dared to hope that growth would bounce back this year, and in her Mais Lecture next week, she will stress the importance of pressing ahead with her economic plan.

But there is scant evidence in the latest data that an uptick was on its way, even before the missiles began to fly in the Middle East.
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