UK economy stalls as weak demand and falling consumption bite – the oil price shock could push the economy into recession.

In January, the UK economy has flatlined, not plunged—a subtle but telling sign of stagnation rather than outright recession. Output showed zero economic growth in January, missing expectations and signalling weak aggregate demand, particularly as consumers cut back on discretionary spending like eating out. With inflationary pressures still weighing on real incomes, confidence remains fragile, limiting consumption-led growth. While unemployment has not sharply worsened, the absence of momentum suggests a negative output gap may persist. The danger is not dramatic decline, but a prolonged period of low growth, where subdued expectations risk entrenching economic inertia. However, the Iran war and the sharp increase in oil prices could well be more than enough to tip the economy into recession.

UK economy flatlines in January as people cut back on eating out - BBC News

1. Explain, using evidence from the article, why the UK economy is experiencing stagnation.

2. Assess the factors that could push the UK economy into recession.

3. Using the article and your own economic knowledge, discuss how the US–Iran war has changed the outlook for the UK economy in 2026.