Potholes Prop Up Britain's Economy

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It's an economy being driven by needs, not wants, as vehicle repairs prove to be an area of growth.

Britain's potholed roads are propping a moribund economy up shows new data released by the ONS.

The official statistics agency reported the UK economy registered no growth in January, a disappointing outturn for a market expecting 0.2% growth and news that the post-budget rebound continued.

Breaking down the data reveals that a sub-component that is normally overlooked has done some heavy lifting: "repair of motor vehicles and motorcycles rose 1.0% in the month."

"The fact that car repairs were one of the areas called out for growth, at a time when the UK is blighted by potholes, says a lot," says Lindsay James, investment strategist at Quilter.

"The numbers reflect an economy where spending is focused on needs rather than wants," adds James.

The services sector, the engine of the UK economy, returned to growth at 0.2% in the three months to January 2026, compared with the three months to October 2025. This follows three consecutive months of no growth on a 3m/3m basis.

"Services returned to growth in those three months, but quickly stagnated again in January, a potential ongoing concern given the UK’s reliance on that sector," says James.

The construction sector contracted further at -2.0% in the three months to January.

The bad news for the government is that these data precede the Iran conflict and the ensuing rise in energy bills and an inevitable associated hit to business and consumer confidence.

Inflation is likely to stop falling and this will keep the Bank of England on the defensive, meaning it can't stimulate the economy with interest rate cuts.

And it's not just war that suggests the first quarter of 2026 will be a dud.

"The dreadful weather in February will weigh on construction, and the February BRC retail sales monitor pointed to a sharp sales slowdown as the incessant rain kept shoppers away," says Rob Wood, Chief UK Economist at Pantheon Macroeconomics.

'Employment activities' is an area of concern in the economy. It measures the economic output of businesses that provide human resources and staff-related services and could be very much at risk of AI.

Pantheon cuts its Q1 growth forecast to 0.2% quarter-to-quarter, from 0.3%.

Erratic sectors of the economy also played a part in subduing the data, and Wood is confident they will rebound.

Manufacturing of machinery and equipment "not elsewhere classified" fell a notable 7.7% m/m, and production of electrical equipment was down 9.0%.

"Those latter sectors are erratic and will surely rebound in February, so we should look through some of the disappointing weakness in GDP today," says Wood.

The broader manufacturing sector was robust as output rose 0.1% m/m. Vehicle manufacturing rose handsomely as the disruption from the cyber-attack-driven shutdown last year continues to fade.

"Smoothing out the noise, which makes January look disappointing at a headline level, and the economy was recovering some momentum after the Budget circus sapped growth last Autumn. The war in Iran driving up energy prices will weigh on growth from March," says Wood.