Britain’s economy eked out muted growth at the end of last year, official figures have confirmed, but fears are growing over the impact of the Iran war and soaring inflation as oil prices race higher.
The Office for National Statistics (ONS) kept its estimation for the October to December quarter unchanged at 0.1%, which followed unrevised growth of 0.1% in the previous three months.
The ONS increased the out-turn for 2025 as a whole to 1.4%, up from previous growth of 1.3% recorded because of updated expenditure calculations, but more recent figures have shown the economy flatlined in January with zero output.
The sputtering economic performance means the UK is heading into the Iran war from a weak position, experts have warned, with forecasts last week from the influential Organisation of Economic Cooperation and Development (OECD) delivering the biggest downgrade to Britain of all the major economies.
The OECD predicted that gross domestic product (GDP) will be 0.5 percentage points lower in 2026 than prior forecasts, at 0.7% – the biggest cut to the growth outlook of all the countries in the G20.
It also puts the UK at second lowest in the G7 in terms of economic growth this year, behind only Italy.
A Treasury spokesperson insisted the Government has “the right economic plan”.
They said: “The decisions we have taken have put us in a better position to protect the country’s finances and family finances from global instability.
“We were the fastest growing European economy in the G7 last year and now we’re going even further by using regional growth, artificial intelligence and a closer relationship with the EU to get our economy growing.”
The figures showed the UK’s dominant services sector flatlined in the fourth quarter with zero growth, while production expanded by 1.2% and construction fell by 2%.
The ONS also said real disposable income per head increased by 1.2% in the final quarter of last year, following a downwardly revised decrease of 1.2% in the third quarter.
The household saving ratio increased this quarter by 0.8 percentage points to 9.9%, which the ONS said was caused by higher non-pension saving and “remains high by historic standards”.
There are concerns that the UK’s economy is set to be damaged particularly badly by soaring energy prices caused by the Middle East conflict, given its lacklustre performance last year and reliance on imported gas.
The OECD forecast the UK would see inflation jump to 4% this year, up from 3% in the latest official figures.
Martin Beck, chief economist at WPI Strategy, said: “With so little momentum heading into 2026, the economy is particularly vulnerable to the latest energy price shock, and it would not take much for GDP to tip into outright contraction.”
He added: “Much will depend on how long the conflict in the Middle East, and the associated rise in energy prices, persists.
“If it drags on, inflation is likely to pick up again, cost-of-living squeeze pressures will revive, and any support from lower interest rates will be pushed further back.
“That would weigh on both growth and jobs. In that scenario, it’s easy to see the economy stagnating or even slipping into recession, rather than achieving the 1% to 1.5% growth that had previously been widely expected.”
