The UK economy unexpectedly slipped into negative territory at the start of the year, underscoring the difficult environment facing Chancellor Rachel Reeves as she prepares her spring statement on 26 March.
According to figures released by the Office for National Statistics (ONS), gross domestic product (GDP) declined by 0.1 per cent in January, reversing a 0.4 per cent gain in December. Analysts had forecast a modest 0.1 per cent increase.
A sharp 0.9 per cent contraction in the production sector drove the overall decline, while construction activity dipped by 0.2 per cent. The services sector, which accounts for around three-quarters of economic output, managed a 0.1 per cent rise in January, easing from 0.4 per cent growth in December. Over the three months to January, GDP still rose by 0.2 per cent compared with the previous three-month period.
Liz McKeown, director of economic statistics at the ONS, commented: “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.”
Since the October budget, economic growth has trailed expectations, likely compelling Reeves to scale back public spending in order to adhere to her fiscal rules. The chancellor is reportedly looking to reduce welfare payments at a time when the government faces calls to raise defence expenditure, following President Trump’s suggestion that he may roll back US military backing for Europe.
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