The UK economy unexpectedly shrunk by 0.1% a month in January, official figures showed on Friday.
The UK’s National Statistics Office said the decline was primarily due to contraction in the production sector.
The economists voted by Reuters had expected the country’s GDP to grow by 0.1%.
Right after the data release, at 7:35am in London, British Pound It fell by about 0.15% against the dollar to trade at $1.293. Sterling was flat against the Euro.
Meanwhile, long-term government borrowing costs rose, which surged to highs in large months earlier this year. yield 20 years of UK government bonds – Known as Gilts – Add 2 basis points, 30 years of gold leaf yield It rose with 4 basis points.
Service output rose 0.1% a month in January, but marked a slowdown from a 0.4% increase in December. After recording an increase of 0.5% in the previous month, production output fell by 0.9% that month. Meanwhile, monthly construction output fell by 0.2% in January after a 0.2% reduction in December.
The UK economy rose 0.1% in the fourth quarter, beating forecasts, ONS data showed last month. It was flatlined in the third quarter.
Since then, monthly GDP data has been checked, with a contraction of 0.1% in October, an expansion of 0.1% in November, and a monthly expansion of 0.4% in December, and a growth in service and production.
Friday’s GDP release will mark the final printout before the UK Treasury Department’s “Spring Statement” on March 26th, with Prime Minister Rachel Reeves giving an update on plans for the UK economy.
The statement, released along with economic forecasts from the office for budget responsibility, is the UK’s independent economic and fiscal forecaster, providing an assessment of the impact of the government’s tax and expenditure plans.
There were concerns that the Treasury’s financial plan, laid out last fall and which will increase tax burdens on UK companies, could weigh investment, employment and growth. Reeves defended the rise in taxes, saying they are a one-off measure and necessary to encourage investment in public services.
Further cuts have come as the Bank of England made its first interest rate cut of the year in February, halving its 2025 growth forecast from 1.5% to 0.75%.
The market is widely hopeful that the Bank of England will hold the rate steady at 4.5% at its Monetary Policy Committee meeting next week, LSEG data showed on Friday.
The central bank said it would determine how to balance the inflation risk posed by US President Donald Trump’s trade tariffs with the need to increase growth. Although the UK has not been specifically targeted so far, exports of steel and aluminum to the US constitute a 25% import operation of metals.
In a memo on Friday, Paul Dales, UK Economics President of Capital Economics, said the data highlighted weaknesses in the UK economy before the effects of rising business taxes and geopolitical uncertainty were fully set.
“Most of the weaknesses are recovery from the surprisingly strong 0.4% m/m rise in GDP in December,” he said. “In other words, the December numbers make the economy look stronger than it actually is, and the January one looks a little weaker. The truth is that perhaps the underlying pace of growth is just above zero.”
He added that US President Donald Trump’s blanket tariffs on steel and aluminum were only in effect this week, but they could already have an impact on the UK economy.
“The 1.1% m/m drop in production output was due to a 3.3% m/m drop in metal output,” he explained. “It’s probably related to tariffs, as has been anticipated for a while.”
Speaking to Parliament on Wednesday, British Prime Minister Kiel Starmer told politicians he hopes Britain can still circumvent Trump’s protectionist trade policy.
“I am disappointed to see global tariffs related to steel and aluminum, but we will take a practical approach,” he said. “We negotiate economic transactions to cover and include tariffs if successful, but we keep all our options on the table.”
