The ONS reported today that UK GDP grew by just 0.1% in the October to December quarter, raising fears of a UK recession.
That followed similar growth of 0.1% in the preceding three months.
The subdued figures point to “a picture of fragile growth facing a powerful external hit,” according to Lauren Hyslop, fund manager at Mattioli Woods.
She said markets were focused on the Iran war oil shock. “Sterling and gilts will likely stay tethered to global risk sentiment and oil prices.”
She said UK equities “remain driven by war-related rotations with energy and defence names in favour, and travel, consumer and rate sensitive stocks under pressure.
“The data confirms that the UK entered this geopolitical storm from a position of fragile but positive growth.”
Ms Hyslop said for the 'real economy' this presented a 'stag-flationary' risk as higher imported energy costs could squeeze households and firms already suffering a softening demand base.
Danni Hewson, AJ Bell head of financial analysis, said even before the start of the conflict in the Middle East, which is set to reignite global inflation, the UK was struggling.
She said: “The IMF has warned that the UK, like Italy, is particularly exposed to another gas crisis, with the global outlook dimmed just as many economies had shown signs of recovery.
“The construction sector has been particularly weak, despite a big push by the government to get Britain building. Increased costs and potential rate hikes will only further weaken the outlook for housebuilders.”
Ms Hewson warned that with the war in Iran, now in its fifth week, “a quick economic snap back seems impossible and the potential for recession more and more likely.”
In more upbeat news the ONS revised upwards annual growth for the whole of 2025, increasing it from 1.3% to 1.4%.
The Treasury said: “We were the fastest growing European economy in the G7 last year and now we’re going even further by using regional growth, AI and a closer relationship with the EU to get our economy growing.”