UK economy unexpectedly contracted 0.1% in January

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The UK economy unexpectedly contracted 0.1 percent in January, confirming the challenge facing Chancellor Rachel Reeves as it is preparing to present a high -level spring statement this month.

On Friday, the GDP of the National Statistics Office was 0.1 percent lower than the economists covered by Reuters and 0.4 percent in December. The decline was largely driven by the production sector.

Reeves is preparing to curb public spending in its spring statement on March 26 after disappointing growth, and the government’s borrowing figures raised concerns that they are on the right path to break its financial bases.

The growth has stopped significantly since May, when he achieved tax revenues, after the UK economy recovered from the technical recession at the beginning of 2024.

The budget responsibility office in October expects the 2025 economic growth by 2 percent – doubles by 1 percent of Reuters economists. The International Energy Agency is expected to issue a new prediction in addition to the spring statement.

Surin Thero, director of economics at the Institute of Certified Accountants, said that the decrease in the gross domestic product in January made the Rivs Spring statement “more problematic” because it increased the possibility that OBR reduces its expectations, “undermines the spending plans for the consultant.”

The pound has weakened a little after the issuance of Friday data, a decrease of 0.2 percent against the dollar at $ 1.292. Gilts were fixed in early trading, with 10 years return at 4.68 percent.

The numbers come at a time when the repercussions of the escalating trade war, Donald Trump, add to the economic strains facing the United Kingdom, as well as the possibility of high defense spending as the American president disrupts Western security alliances.

“The world has changed and around the world we feel the consequences,” Reeves said in response to Fridays.

As a result, she said: “We are launching the greatest sustainable increase in defense spending since the Cold War, mainly reshaping the British state to present it to workers and their families, and take over its blockers to make Britain build again.”

Last July, the Labor Party won a promise to start growth, but Reeves faced criticism about its budget in October, which left companies that bear a weight of 40 billion pounds in tax increases.

Companies have warned of job cuts as a result of measures, which enter into force as of April.

Paul Dalis, an economist in economics consulting in Capital, said that the January decrease in production “highlights the weak economy before the full impacts of the high uninterrupted work and global background.”

The Bank of England is expected to maintain 4.5 percent at its meeting next week, amid signs of freshness in inflation. Last month, the central bank reduced the economic growth forecast for the first quarter from 2025 to 0.1 percent, from 0.4 percent expected in November.

Despite the shrinking of January, Thero said that the low prices by the Bank of England next week were “unlikely” that the most important rates may want to assess the impact of the increase in national insurance contributions to the employers from the budget.

The data of the merchants presented on Friday strengthened that there are at least two discounts in interest rates at least a quarter of England’s bank this year, with the little opportunity for the third, according to the levels involved in the bidding markets.

According to ONS data on Friday, the manufacturing sector signed 1.1 percent in January, with a decrease of 0.2 percent in construction, while services grew by 0.1 percent.

Liz McChyun, Director of Economic Statistics, said the comprehensive image of the British economy was “poor growth.”

However, the services continued to grow in January, and said: “Leading a strong retail month, especially food stores, where people ate and drank at home more.”

ONS said that the publication of trade data, which was usually issued alongside GDP numbers, was delayed by errors.