UK economy shrank unexpectedly by 0.1% in January

The UK economy shrank unexpectedly by 0.1% in January, with a slowdown in manufacturing one of the main reasons for the dip.

The performance was weaker than expected, and came after the economy had grown by 0.4% in December.

It will be seen as a blow to the government, which has said its number one priority is to boost UK economic growth.

The figures come ahead of the chancellor’s Spring Statement, which is expected to include government spending cuts.

Liz McKeown, ONS director of economic statistics, said: “The economy shrank a little in January but grew in the latest three months as a whole, with the overall picture continuing to be of weak growth.”

Construction and oil and gas extraction had a “weak month”, she said.

But this was partially offset by retail, particularly food shops, “as people ate and drank at home more”, she said.

Although growth was down for the month in January, monthly readings can be volatile and the ONS said the economy was estimated to have grown by 0.2% over the three months to January.

Chancellor Rachel Reeves said: “The world has changed and across the globe we are feeling the consequences.”

She added the government is “going further and faster” to “kickstart economic growth”.

Yael Selfin, chief economist at KPMG UK, said the UK economy had started the year “on the back foot” as uncertainty about Trump tariffs was making businesses cautious about investment.

She said predictions of “sluggish growth” means Reeves will probably “tighten purse strings” in the Spring Statement.

The recent cut to UK aid to fund an increase in defence spending “is a preview that some departments will see their spending plans squeezed”, she added.

Anna Leach, chief economist at the Institute of Directors, said a slight rise or fall in one month was not significant, but the important point was the economy overall is “quite weak and therefore quite vulnerable”.

Car manufacturers in particular have “notable weaknesses” with trade uncertainty from Trump tariffs, and “chopping and changing in the targets of the adoption of electric vehicles”.

She said the UK growth figures “certainly won’t help” in the lead up to the Spring Statement, when the independent forecaster the Office for Budget Responsibility is likely to downgrade its growth prediction.

Last month, the Bank of England halved its growth forecast for the UK this year.