UK economy contracts in January amid faltering production sector

Britain’s economy shrank in January amid a sharp fall in the manufacturing sector, in a blow to Chancellor Rachel Reeves before her spring statement, official figures have shown.

The Office for National Statistics (ONS) said the economy contracted 0.1% during the month, behind expert predictions and down from a 0.4% rise in December.

Most economists had forecast gross domestic product (GDP) to rise by 0.1% in the first month of the year.

Ms Reeves said: “The world has changed and across the globe we are feeling the consequences.

“That’s why we are going further and faster to protect our country, reform our public services and kickstart economic growth to deliver on our plan for change.”

The ONS said the surprise contraction came from a weak performance in the manufacturing and construction sectors, partly dampened by poor weather in January.

Meanwhile, the escalating global trade war started by US President Donald Trump has sparked concerns about future growth.

Labour has made growing the economy its key priority since winning the election last year but momentum has been slow amid falling consumer confidence and rising inflation.

While the immediate pressure on Ms Reeves eased after a surprise jump in growth in the last month of 2024, the latest figures mark another setback.

Ms Reeves pointed to a recently-announced ramp-up in defence spending, plans to reform public bodies and changes to the planning system as part of measures to boost the economy.

For the three months to January, GDP was estimated to have grown by 0.2%, driven by growth in the services sector, the ONS said.

Liz McKeown, the ONS director of economic statistics, said the figures continued to show “weak growth”.

She said: “The fall in January was driven by a notable slowdown in manufacturing, with oil and gas extraction and construction also having weak months.

“However, services continued to grow in January led by a strong month for retail, especially food stores, as people ate and drank at home more.”

Ms Reeves will deliver her spring statement on March 26, where increased borrowing costs and weak economic growth are likely to require spending cuts in order to meet her commitments on managing the public finances, experts have warned.

There are still worries over whether she will meet her fiscal rules, as well as the impact on businesses and jobs from employment tax rises in the October budget which come in at the start of April.

Companies have warned a hike to national insurance contributions and the minimum wage at the last budget will see businesses raise prices and slash jobs.

Meanwhile, the Conservatives branded the Government a “growth killer”, blaming tax rises and proposed changes to employment rights.

Shadow chancellor Mel Stride said: “The Chancellor has 12 days until her emergency budget – she must think again or hard-working people will continue to pay the price of a Labour Government without any business experience.”

TUC general secretary Paul Nowak said the figures “show the need for public investment”.

He said: “Investment in public services and infrastructure will bring our economy back on track.

“Stronger growth is the best way to secure sustainable public finances.”