The UK economy contracted by 0.1% in January, defying expectations and marking a weak start to the year. A slowdown in manufacturing, along with declines in construction and oil and gas extraction, contributed to the dip, according to the Office for National Statistics (ONS).
The decline follows a stronger-than-expected growth of 0.4% in December. While the ONS noted that the economy grew by 0.2% over the three months leading to January, the unexpected contraction is seen as a setback for the government, which has prioritized boosting economic growth.
Liz McKeown, ONS director of economic statistics, described the latest figures as part of an overall trend of weak economic performance. “The economy shrank a little in January but grew in the latest three months as a whole,” she said. Despite declines in key industries, retail sales—particularly food shopping—helped offset some of the losses as consumers spent more on groceries and home dining.
The weaker-than-expected performance comes just ahead of Chancellor Rachel Reeves’ Spring Statement, in which she is expected to outline government spending cuts. Reeves acknowledged the economic difficulties, stating, “The world has changed, and across the globe, we are feeling the consequences.” She added that the government is moving “further and faster” to revive economic growth.
Economists warn that ongoing uncertainties, including the possibility of new trade tariffs under a future Trump administration in the U.S., could further dampen business confidence and investment. Yael Selfin, chief economist at KPMG UK, said the economy had started the year “on the back foot” and warned of “sluggish growth” ahead.
As a result, Reeves is expected to take a cautious approach in the Spring Statement, with potential spending cuts affecting various government departments. The recent decision to reduce UK foreign aid in favor of increased defense spending has been seen as an early indication that other areas of public expenditure may also face tightening.
With inflation still a concern and interest rates remaining relatively high, businesses and consumers alike will be watching closely for any signs of relief or stimulus measures in the chancellor’s upcoming statement.
While monthly economic figures can be volatile, the unexpected contraction in January underscores the fragile state of the UK economy. The government now faces increasing pressure to deliver policies that can sustain growth and reassure businesses and households amid ongoing economic uncertainty.
