MTS Insights

GDP stagnated in January. Peripheral sectors (construction and agriculture) reported positive monthly growth while services registered zero growth and production showed a second consecutive monthly contraction.

• We continue to expect GDP growth of 0.3 per cent in the first quarter of 2026, driven by a recovery in activity in services and production.
• We expect the impact of elevated energy prices on growth to be limited in the first quarter, but if energy prices remain elevated for the rest of the year it could reduce GDP growth by around 0.2 percentage points in 2026.
• “GDP did not grow in January, despite surveys pointing to a revival in business sentiment early in the New Year. Services stagnated while production entered its second month of contraction. This is a worrying start to the quarter, given that the early-year improvement in business confidence is likely to be short-lived as global disruption linked to the Iran War hits the UK economy. We expect the impact on growth in the first quarter to be limited, but if energy prices remain elevated for the rest of the year it could reduce GDP growth by around 0.2 percentage points in 2026.”

Consumer sentiment dipped about 2%, reaching its lowest reading of the year. Interviews completed prior to the military action in Iran showed an improvement in sentiment from last month, but lower readings seen during the nine days thereafter completely erased those initial gains. Gasoline prices have exerted the most immediate impact felt by consumers, though the magnitude of passthrough to other prices remains highly uncertain. A broad swath of consumers across incomes, age, and political affiliation all reported declines in expectations for their personal finances, down 7.5% nationally. Interviews for this release were collected between February 17 and March 9, with about half completed after the start of the US military conflict in Iran.

This month, year-ahead inflation expectations ended six months of consecutive declines, stalling at 3.4%. The current reading exceeds those seen in 2024 and remains well above the 2.3-3.0% range seen in the two years pre-pandemic. Long-run inflation expectations inched down to 3.2%. In 2024, readings ranged between 2.8% and 3.2%, while in 2019 and 2020, they were consistently below 2.8%. Note that for both time horizons, interviews completed after February 28th exhibited higher inflation expectations than those completed before that date (see chart, right panel).

The New York Fed Staff Nowcast for 2026 Q1 is 2.1%, with the 50% probability interval at [0.8, 3.2]% and the 80% probability interval at [-0.1, 4.2]%.

• News from this week's data releases decreased the estimate by 0.1 percentage point.
• This decrease was largely driven by the negative revision to 2025 Q4 GDP data.