The UK economy witnessed an unseasonal 0.1% decline in January, which proved to be a test for Rachel Reeves while she gears up for the spring statement. The report was published by the Office for National Statistics (ONS) and contradicted the expectations of City analysts that there would be a modest 0.1% growth.
This slowdown came largely because the services sector had performed badly and could not reverse the loss faced by the manufacturing sector. Industrial output tumbled 1.1%, cancelling out December of the previous year’s increase of 0.7%. And negative weather over the winter slowed the building industry, blocking on the plans to build new houses.
Yael Selfin, chief economist at KPMG UK, said, “The UK economy begins the year on the back foot as international uncertainty puts a shadow over the outlook.”
It had promised an improvement in December with a growth of 0.4%, which resulted in a 0.1% growth for Q4 of the year, enabling the economy from entering two successive quarters of slowdown.
Though, the Bank of England’s monetary policy committee is expected to maintain interest rates unchanged at 4.5% when it meets next week, a move already priced in by financial markets.
The National Institute of Economic and Social Research (NIESR), which presents some hope, forecast a 0.4% growth rate for the first quarter of 2025, better than the Bank of England’s more subdued 0.1% forecast.
A delicate tension between domestic challenges and global uncertainties is seen in the present economic situation. There are opportunities for modest growth in the short term, despite the challenges encountered by the manufacturing and construction sectors. Policymakers will be under close examination as they formulate plans to stabilize and boost the economy during the spring statement.