The UK economy showed no growth in January 2026, disappointing expectations for a strong rebound after late-2025 weakness, according to Deutsche Bank’s Chief UK Economist Sanjay Raja [1]. The Office for National Statistics (ONS) confirmed that UK GDP flatlined in January, compared to a 0.1% increase in the previous month, and below the estimated 0.2% rise [2]. Broad softness was observed across services, industry, and construction, with administrative and support services declining by 2.3% month-on-month, largely due to a 5.7% drop in employment activities. Hospitality also fell by 1.8% month-on-month [1]. The Index of Services increased by 0.2% on a three-month basis, versus December’s 0%, while monthly Industrial Production fell by 0.2% and Manufacturing Production rose by 0.1%, both below market consensus [2].
The weak GDP data triggered a negative reaction in the Pound Sterling (GBP), which edged lower against the Euro (EUR). The EUR/GBP cross held gains above 0.8600, trading near 0.8630 during the early European session on Friday [2]. Deutsche Bank warns that the Iran conflict, rising energy prices, and higher uncertainty could further weigh on UK growth, real incomes, spending, and investment [1]. Sanjay Raja notes that the Bank of England faces an uncomfortable trade-off, needing to navigate these headwinds carefully to avoid a more protracted downturn [1].
Meanwhile, traders have increased pricing for European Central Bank (ECB) rate hikes after hawkish comments from central bank members. ECB policymaker Isabel Schnabel stated that new quarterly forecasts will partly incorporate the economic impact of the war in Iran, and Governing Council member Peter Kazimir suggested a rate hike may be closer than previously thought. Swaps pricing now indicates the ECB could tighten monetary policy as soon as June, according to LSEG data [2].
Overall, the weak UK GDP data has heightened concerns about growth prospects and contributed to currency market volatility, with the GBP weakening and expectations for ECB rate hikes accelerating.
CONCLUSION
UK GDP stagnated in January 2026, falling short of expectations and highlighting broad economic weakness. The disappointing data weighed on the Pound Sterling and increased market concerns about future growth, while traders now anticipate faster ECB rate hikes. The market takeaway is a negative sentiment for UK assets and heightened uncertainty for monetary policy in both the UK and Eurozone.