UK Economy Contracts Unexpectedly in January, Dealing Blow to Growth Plans

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The UK economy unexpectedly contracted by 0.1% in January, with a slowdown in manufacturing playing a significant role in the decline. The latest figures mark a disappointing start to the year, particularly after December’s stronger-than-expected 0.4% growth.  

 

The weaker-than-anticipated performance is likely to be seen as a setback for the government, which has emphasized economic growth as its primary objective. The figures arrive just ahead of the Chancellor's Spring Statement, where government spending cuts are expected to be a key feature.  

'This Government is determined to turnaround the poor performance of more than a decade'

Chancellor Rachel Reeves gave her reaction after official figures revealed the UK economy shrank by 0.1% in Januaryhttps://t.co/99MWJ8kI07 pic.twitter.com/f0hQ1mfjDw

— BBC Breakfast (@BBCBreakfast) March 14, 2025

 

The Office for National Statistics (ONS) confirmed the contraction, noting that it fell short of analyst forecasts, which had predicted modest growth of 0.1%. This development presents a significant challenge to Chancellor Rachel Reeves, who has been pushing for economic expansion.  

 

The decline occurred in the same month that the Chancellor delivered a major speech outlining her vision for economic growth, including her support for the expansion of Heathrow Airport. However, despite these ambitions, businesses braced for the financial impact of upcoming employment policy changes included in Ms. Reeves’s Budget.  

 

In October, the Chancellor announced that employer contributions to National Insurance and the minimum wage would both increase in April, adding pressure on businesses already dealing with economic uncertainty.  

 

ONS director of economic statistics Liz McKeown commented on the decline, stating, “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.”  

 

The data paints a complex picture of the UK economy, with growth in services unable to offset declines in key sectors. With economic policy changes on the horizon and spending cuts looming, the coming months will be critical in determining whether the UK can regain its growth momentum.

 

Based on a report by BBC | X  2025-03-15