The UK economy shrank unexpectedly in January, hampered by a slowdown in the production sector.
The latest GDP figures from the Office for National Statistics showed growth fell 0.1%, reversing the 0.4% uptick in growth in December, and below analysts’ forecasts of 0.1% growth.
Monthly services output grew by 0.1% in January, adding to growth of 0.4% in December, however, it was offset by a 0.9% fall in production, with manufacturing output driving the fall.
Meanwhile, construction output fell by 0.2% in January, following a fall of 0.2% in December.
The ONS said the economy was estimated to have grown by 0.2% in the three months to January.
However, the overall picture was deemed one of weak growth, according to industry commentators.
Danni Hewson, head of financial analysis at AJ Bell, said: “As surprises go, it’s a pretty unwelcome one, but when you’re talking about an economy bouncing along the bottom, the big picture doesn’t really change that much. The UK is struggling to find the key to the growth that the Government says is a priority if people are going to start to feel better about their own financial lives.
“And when you drill into the one main positive from the month, that people had spent more on their weekly food shop, it could be seen as households choosing to batten down the hatches and stay at home rather than spend money out because they’re nervous about the road ahead.”
Hewson said talk of a potential US recession is also damaging to global confidence and in the UK, confidence has been hammered by an increase to employer national insurance.
The disappointing figures come ahead of the Chancellor’s spring statement later this month and will raise question marks over the future direction of fiscal policy.
Hewson said: “If the Bank of England’s number crunchers got their forecasts right then the UK is expected to grow by half as much this year as had been thought back in November, and that will have backed Rachel Reeves into a corner.
“The Government didn’t want to hold a proper ‘fiscal event’ until next autumn, but with the increase in spending on defence, the ratcheting up of trade tensions and a brittle economy, the Spring Statement is now expected to hold more than just a forecast.”
Richard Carter, head of fixed interest research at Quilter, said: “On a monthly basis, economic growth can appear to be quite choppy, but the bigger picture shows a stagnant economy. It is becoming increasingly clear that Chancellor Rachel Reeves finds herself in a very difficult position. The Government is between a rock and a hard place given its repeated assurances that it will not raise taxes for working people.”
Carter said the figures also provide the last snapshot of the economy before the Bank of England’s interest rate decision.
“While the economy is somewhat reliant on interest rate cuts to shore up consumer confidence, the recent higher than expected rise in inflation means the likelihood of a further rate cut from the Bank remains fairly slim given it will be wary of cutting too much too quickly,” he added.
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