Oil crisis to ‘push UK into recession’ after growth flatlines
Fears that the ongoing crisis in the Middle East will plunge the UK into a recession have been amplified after fresh figures revealed the economy flatlined in January.
The price of oil closed above $100 for the first time since 2022 last night as interventions from the global energy body failed to calm markets amid the war in Iran.
It came as Iran’s Islamic Revolutionary Guard Corps (IRGC) warned that it will set the region’s oil and gas “on fire” if Iran’s energy infrastructure and ports are attacked and continued to target ships in the Strait of Hormuz – a vital waterway that a fifth of the world’s oil supply flows through.
City economists had pencilled the UK would grow 0.2 per cent in January in what was viewed as the calm before the storm after the Middle East conflict broke out in late February.
But figures on Friday from the Office for National Statistics (ONS) showed economic growth was flat in the first month of the year, marking a crushing blow to Rachel Reeves.
Neil Wilson, investor strategist at Saxo Markets, said: “UK economic figures for January were flat.
“Given the fragile state of the economy the hike in oil prices will push Britain into recession, if $100 oil is sustained.”
The surging price of oil has led to markets bracing for an inflation spike and pricing in an elevated interest rates path than previous expectations.
“Are rate hikes the answer to a six sigma supply shock to oil? I doubt it,” Wilson said.
Julian Jessop, economics fellow at the Institute of Economic Affairs, said: “The latest GDP data show that the UK economy is being taxed and regulated to a standstill.
“The “steady as she goes” Spring Statement now looks even more like a missed opportunity to change course.”
Reeves accused of ‘doubling down on failed policies’
Still, Chancellor Rachel Reeves defended the government’s “economic plan is the right one” on Friday.
She added: “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.”
Shadow Chancellor Sir Mel Stride accused the government of “doubling down on their failed policies”.
“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.”
Economists have warned major economies could be left reeling from the consequences of a potential oil supply crisis.
Ahead of the latest GDP data, analysts at the RBC Capital Markets have warned that a long-lasting war could “tilt” the UK economy into an “outright recession” given the state of the country’s vulnerable jobs market.
“Labour markets are in a substantially weaker position now than was the case in 2022 and there must also be a non-trivial possibility that firms will not be able to pass on prices fully and have to take margin cuts instead.”
Thomas Pugh, chief economist at GDP, said a “swift” end to the conflict would still take growth for the year below one per cent.
“If energy prices stay around current levels, another bout of stagflation looks likely, with growth slipping to around 0.5 per cent this year.”
But he warned in the event they shoot even high, recession “looks more likely, given the weaker labour market and tighter starting point for monetary and fiscal policy”.