The United Kingdom’s economy has opened 2026 on shaky ground, with fresh official statistics revealing no expansion in gross domestic product during January. In response, senior analysts at KPMG UK have issued a sobering assessment, highlighting how surging energy costs and shifting financial conditions are poised to dampen activity even further in the months ahead.
Yael Selfin, Vice Chair and Chief Economist at KPMG in the UK, described the data as evidence of a disappointing start to the year, suggesting that meaningful growth may prove difficult to achieve in the short term.
She noted that the economy began the period already struggling, and output is forecast to soften more noticeably because of sharply higher energy prices.
Although domestic energy bills for households will enjoy some protection from the full force of these increases until July—thanks to an impending drop in the Ofgem price cap for the second quarter—broader public sentiment is expected to sour quickly.
Many consumers are likely to rein in spending on non-essential goods and services as they seek to absorb the impact of elevated living costs.
This cautious consumer behavior could ripple through the wider economy.
With confidence fading, discretionary purchases may decline, placing additional pressure on retailers and service providers already navigating a subdued environment.
Selfin pointed out that the combination of higher household expenses and weaker confidence risks creating a self-reinforcing cycle of slower demand.
On the corporate side, the outlook appears equally challenging.
Borrowing costs have edged higher in recent weeks as financial markets adjust their expectations for monetary policy.
Investors now anticipate that the Bank of England will hold interest rates elevated for longer than previously thought in order to manage the inflationary consequences of the energy surge.
Businesses, which are simultaneously facing immediate jumps in energy bills and other input expenses, will therefore encounter stiffer financing conditions.
Against a backdrop of reduced growth prospects and rising operational pressures, many firms are expected to scale back capital spending and investment projects over the coming twelve months.
This retrenchment could further constrain productivity gains and limit the economy’s capacity for recovery.
Turning to the headline numbers, official data confirmed that UK GDP registered zero growth in January.
Both construction and production sectors recorded contractions during the month, contributing to the overall standstill.
KPMG economists believe the sluggish pace observed at the beginning of the year has carried through into February, with the outlook pointing to an even sharper slowdown starting in March as the full effects of higher energy prices take hold.
The analysis underscores a delicate balancing act for policymakers.
While temporary relief measures offer households a brief buffer, the persistent drag from energy costs and tighter financial conditions threatens to prolong a period of below-trend expansion.
Businesses, meanwhile, must contend with both demand-side weakness and cost-side challenges, potentially leading to more conservative hiring and investment decisions.
Selfin’s commentary serves as a timely reminder that external shocks—particularly those affecting energy markets—can quickly reshape domestic economic trajectories.
With activity already flat and momentum fading, the coming quarters will test the resilience of both consumers and enterprises.
Sustained vigilance, adaptive strategies, and targeted support may be required to navigate the headwinds and lay the groundwork for eventual stabilisation.
KPMG UK’s assessment paints a picture of cautious restraint.
The flat January GDP print, combined with anticipated further weakening driven by energy prices and elevated borrowing costs, signals that 2026 could begin with a prolonged phase of subdued performance rather than the acceleration many had hoped for.
KPMG concluded that as households tighten belts and companies defer investments, the path to stronger growth remains uncertain and dependent on how quickly global energy dynamics and domestic policy responses evolve.