US and UK Economic Growth Revised Downward as Inflation Pressures Persist

The United States government revised the fourth-quarter 2025 gross domestic product growth downward to 0.7 percent, a significant drop from the 1.4 percent previously expected by economists. This revision coincided with the release of the January 2026 Personal Consumption Expenditures Price Index, which rose 0.3 percent for the month. While the monthly increase met market expectations, annual PCE inflation stood at 2.8 percent, and the core PCE index—which excludes volatile food and energy costs—climbed 3.1 percent year-on-year. This core inflation figure represents the largest gain since March 2024, suggesting that underlying price pressures remain persistent despite slowing economic growth. The Federal Reserve faces increasing complexity in its monetary policy decisions as it balances the cooling economy against inflation that remains above its 2 percent target. The United States economy has seen shifting growth patterns following the post-pandemic recovery period. In 2024 and 2025, the Federal Reserve maintained elevated interest rates to curb inflation that had reached forty-year highs. The core PCE index has been the primary metric used by the central bank to determine the necessity of rate hikes or cuts. Historically, a 2 percent annual inflation rate is considered the benchmark for price stability in the American economy.

The British economy grew by 0.2 percent in the three months leading up to January 2026, falling short of the 0.3 percent forecast previously issued by the Bank of England. Data released by the Office for National Statistics (ONS) on March 13 indicated that the economy lost momentum unexpectedly at the start of the year. Following the publication of these figures, the British pound fell 0.51 percent against the US dollar to $1.3273. Sterling also weakened against the euro, which rose 0.1 percent to 86.3 pence. Investors reacted to the sluggish growth data by moving toward safe-haven assets, a trend further amplified by geopolitical instability. The Bank of England is now under pressure to reconsider its growth forecasts for the remainder of 2026, which were recently downgraded to 1.1 percent.

Economic indicators suggest that both the US and UK economies were experiencing structural weaknesses before the full impact of the conflict with Iran began to manifest. The conflict escalated in late February 2026, marked by a significant attack on February 28, which has since driven investors toward the US dollar as a primary safe-haven currency. BBC Deputy Economics Editor Dharshini David noted that the economic foundations were already unstable prior to the outbreak of hostilities. Analysts from Berenberg, including economist Andrew Wishart, pointed out that the combination of weak GDP revisions and geopolitical risk creates a difficult environment for central banks. The Federal Reserve has reportedly frozen plans for interest rate cuts as it monitors the dual impact of the Iran war and the revised growth data. „Economy on shaky ground even before Iran war” — Dharshini David via BBC

UK Annual GDP Growth Trend: 2024: 1.1, 2025: 1.3, 2026: 1.1

safe-haven assets