UK financial system was flatlining even BEFORE Middle East disaster erupted amid alarm at looming inflation spike
The British economy was flatlining even before the Middle East crisis erupted, grim figures revealed today.
Official figures showed GDP did not grow at all in January, in another blow to Rachel Reeves.
Although UK plc remained marginally in the black over the past three months, the performance will fuel alarm about resilience with energy prices surging in the wake of the US-Israeli attacks on Iran.
Ms Reeves insisted Labour’s economic plan remained the ‘right one’, despite warnings that an inflation spike could deal a hammer blow to households and the public finances.
Markets now believe there is no chance of the Bank of England cutting interest rates this month, raising the prospect of so-called ‘Stagflation’.
Official figures showed GDP did not grow at all in January, in another blow to Rachel Reeves
Ms Reeves insisted Labour’s economic plan remained the ‘right one’
ONS economic statistics director Liz McKeown said: ‘Growth ticked up slightly in the latest three months, partly reflecting the recovery of car manufacturing, following the cyber incident in the Autumn.
‘Within services, which also increased, wholesale continued to rebound from a weak summer. However, the overall picture remains subdued, with no growth in the latest month.
‘There was another large fall in the construction industry in the latest three months, with continued contraction in housebuilding.’
Ms Reeves said: ‘Our economic plan is the right one, but I know there is more to do. 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.’
The oil price rose again overnight, hovering close to $100 a barrel. The Strait of Hormuz – through which around a fifth of the world’s supplies pass – has been effectively closed by Iran.
Brits are already feeling the pain at fuel pumps, although prices of goods will take longer to feed through and the cap on energy prices means bills will not go up until July.
The UK government has been preparing for a ‘worst-case scenario’ where the Middle East chaos continues to rage for months to come.
Internal analysis is said to have concluded oil prices could reach $150 a barrel if fighting continues until May, with gas costs also spiking.
Only a ‘best case’ presented to ministers, where the conflict ends within days, would see the price stabilising below $100 a barrel, according to Bloomberg.
Iran has been boasting that it can drive costs towards $200.
The Resolution Foundation has warned that if oil prices remain at the levels seen this week the typical annual energy bill could rise by £500 when the cap changes in July.
That would more than wipe out the effect of government subsidies, which are helping to cut costs by £117 a year from next month.
Despite Donald Trump suggesting the war on Iran is ‘very complete’, there is little sign of the turmoil abating.
Shadow chancellor Mel Stride said: Labour’s economic mismanagement has left us vulnerable to the potential impacts of events in the Middle East.
‘They must now Axe the Fuel Tax, back North Sea Oil and Gas and come forward with a proper plan to cut the deficit and get the benefits bill down.’
Suren Thiru, ICAEW Chief Economist, warned of the threat of ‘stagflation’, with the Bank of England unlikely to cut interest rates until the Autumn at best.
‘These figures confirm that the economy was treading water even before the significant economic shock unleashed by the Middle East conflict took hold, as weak services and industrial activity helped suffocate overall output in January,’ he said.
‘The UK economy could well have returned to modest growth in February, aided by a stronger manufacturing and services output, particularly with activity in the month almost entirely pre-dating the current turmoil.
‘The Middle East conflict means that any lingering momentum in the economy has evaporated by now with the energy crisis and supply chain disruption pushing both the UK closer to stagflation and eroding the Chancellor’s fiscal headroom.
Despite Donald Trump suggesting the war on Iran is ‘very complete’, there is little sign of the turmoil abating
Oil tankers in the Gulf near the crucial Strait of Hormuz this week
