The UK economy unexpectedly contracted by 0.1 per cent in January, delivering a blow to chancellor Rachel Reeves in advance of her high-stakes Spring Statement this month.
Friday’s monthly GDP figure from the UK’s Office for National Statistics was below both the 0.1 per cent growth predicted by economists polled by Reuters and December’s 0.4 per cent.
Labour Party chancellor Ms Reeves is preparing to rein in public spending in her March 26th Spring Statement after disappointing growth and government borrowing figures sparked fears that she is on track to break her fiscal rules.
The fallout from US President Donald Trump’s escalating trade war has added to the headwinds facing the UK.
Nicholas Wyett, investment manager at Wealth Club, said the contraction in January, coupled with the impact of Mr Trump’s tariffs could spell further difficulties ahead for the UK economy.
“That’s the really worrying thing about these numbers,” he said.
“Tariffs and increased labour costs were more worries than reality in January, the month covered by these numbers. Those worries will soon be transforming into realities. That leaves plenty of room for economic growth to deteriorate further, with far fewer catalysts to spark an economic recovery. We could be at the start of a long, slow slide into recession.”
The pound weakened slightly after the data release, down 0.2 per cent against the dollar at $1.292.
The Bank of England (BoE is expected to keep rates on hold at 4.5 per cent at its meeting next week amid flickers of resurgent inflation. Last month, the BoE cut its economic growth forecast for the first quarter of 2025 to 0.1 per cent from the 0.4 per cent expected in November.
Labour won the general election last July with a promise to kick-start growth, but MS Reeves has faced criticism over her October Budget, which left businesses bearing the brunt of £40bn in tax increases. – The Financial Times
