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The UK economy unexpectedly failed to grow in January, in a lacklustre start to the year even before the Middle East war unleashed a global energy shock.
The zero growth registered in the month was below the 0.2 per cent growth forecast by economists in a Reuters poll and December’s 0.1 per cent expansion.
Friday’s data from the Office for National Statistics showed that the dominant services sector failed to grow in January while production contracted 0.1 per cent. The construction sector expanded 0.2 per cent.
The surge in oil and gas prices this month raises risks for the UK economy, which shortly before the war began, the Bank of England had forecast would grow 0.3 per cent in the first quarter.
David Miles, the top economist at the Office for Budget Responsibility, the UK’s fiscal watchdog, this week warned that inflation could end the year at about 3 per cent, rather than easing, if energy prices remained at their current levels.
The prospect of higher inflation persisting for longer has prompted traders to scale back bets on interest rate cuts from the BoE. Economists expect the BoE’s Monetary Policy Committee to hold interest rates at 3.75 per cent when it meets next week.
Sanjay Raja, economist at Deutsche Bank, said: “Stickier inflation will lead to lower real disposable incomes and lower investment.”
Friday’s figures showed that in the three months to January, a less volatile measure, the economy grew 0.2 per cent compared with the previous three months.
The economy expanded just 0.1 per cent in both the third and final quarters of last year, as companies and households contended with still high interest rates, the impact of the US trade war and uncertainty over possible tax rises in November’s Budget.
January’s data drew a muted reaction from investors, with the pound dipping 0.3 per cent against the dollar at $1.33.
Responding to the figures, chancellor Rachel Reeves said: “Our economic plan is the right one, but I know there is more to do.”
She added that “in an uncertain world, we are building a stronger and more secure economy by cutting the cost of living, cutting national debt and creating the conditions for growth to make all parts of the country better off”.