Chancellor Rachel Reeves has vowed to “turn around the poor performance of more than a decade” after Britain’s economy contracted in the first month of the year.
Official figures showed GDP fell by 0.1 percent in January amid a sharp decline in the manufacturing sector, surprising economists who had forecast a slight increase.
It follows 0.4 percent growth in GDP in December, the Office for National Statistics (ONS) said, and comes as a blow to the chancellor before her spring statement.
Labour has made growing the economy its key priority since winning the election last year but momentum has been slow amid falling consumer confidence and rising inflation.
Reeves said on Friday: “This government is determined to turn around the poor performance of more than a decade when it comes to growth and we need to go further and faster in growing our economy, in ensuring that we boost our national security and defence, and reforming our public services.”
The ONS said the weak performance in the manufacturing and construction sectors was partly dampened by poor weather in January.
Meanwhile, the escalating global trade war started by U.S. President Donald Trump has sparked concerns about future economic prospects.
The chancellor would not be drawn into saying whether uncertainty caused by Trump’s tariffs had influenced the slump in January, but said she “believes in free and open trade.”
While the immediate pressure on Reeves eased after a jump in growth in the last month of 2024, the latest figures mark another setback.
Reeves pointed to a recently-announced ramp-up in defence spending, plans to reform public bodies, and changes to the planning system as part of measures to boost the economy.
Liz McKeown, the ONS director of economic statistics, said the fall came from “a notable slowdown in manufacturing.”
“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.”
For the three months to January, GDP was estimated to have grown by 0.2 percent, driven by growth in the services sector, the ONS said.
Reeves will deliver her spring statement on March 26, where increased borrowing costs and weak growth are likely to require spending cuts in order to meet her commitments on managing the public finances, experts have warned.
There are still worries over whether she will meet her fiscal rules, as well as the impact on businesses and jobs from employment tax rises in the October Budget which come in at the start of April.
Conservative shadow chancellor Mel Stride branded the government a “growth killer,” blaming tax rises and proposed changes to employment rights.
Meanwhile, TUC General Secretary Paul Nowak said the figures “show the need for public investment.”
He said, “Stronger growth is the best way to secure sustainable public finances.”
