Bleak economic data shows UK plc in trouble well before the Middle East crisis | Economic growth (GDP)
Even before Donald Trump’s Operation Epic Rage against Iran threatened the growth and inflation outlook by leading to higher oil prices, the UK economy was trending sideways.
That’s the bleak message in the latest data from the Office for National Statistics (ONS), which shows zero GDP growth in January.
In the less volatile three-month measure, growth was 0.2%; A slight improvement from 0.1% in the three months to December.
But the data will not help Rachel Reeves’ claim that her policies have put the economy in a stronger position to withstand whatever Britain throws its way.
Sectoral distribution also does not leave much room for optimism. The essential services sector grew by 0.2% in the three months to January, helped by strong growth in wholesale and retail sales; But within that, “employment activities” such as recruitment consultancy fell by 5.7%, a sign of a rapidly weakening labor market.
The seemingly healthier growth of 1.2% in production, including manufacturing, was cheered by the recovery of Jaguar Land Rover from its closure following a cyber attack.
The ONS stated that the construction sector’s production experienced a serious decline of 2 percent in the three months to January. With billions of pounds allocated to infrastructure projects and a pledge this parliament to build 1.5 million homes, construction is key to Labour’s promise to be “builders, not obstructionists”.
There was a small monthly increase in construction production in January of 0.2%; but this was “entirely driven by an increase in repairs and maintenance” and new business was down 2%.
None of this will inspire confidence that the economy is ready to weather the coming storm.
Oil prices have been zigzagging around $100 a barrel for several days now, and with the Strait of Hormuz still effectively closed as a result of Iran’s retaliation against US attacks, prices seem likely to remain higher for some time.
This will quickly impact consumers through rising gasoline prices and could lead to a knock-on increase in utility bills when the next three-month home energy price cap comes into effect in July.
The Bank of England will also be concerned that expensive oil will lead to wider inflation across the economy.
Labor expected further rate cuts in the coming months; This has helped boost consumer confidence and made it cheaper for businesses to borrow money. But markets are now confident that the monetary policy committee will keep interest rates at 3.75% when it meets next Thursday; and they are not convinced there will be any cuts in 2026.
With business surveys relatively strong, Reeves’ team had dared to hope that growth would pick up again this year, and Reeves will stress the importance of continuing his economic plan at next week’s Mais Conference.
But there is little evidence in the latest data that a escalation was on the way even before missiles started flying in the Middle East.
