By Andy Bruce and David Milliken
LONDON (Reuters) -Britain’s economy unexpectedly contracted in January, extending a run of stop-start data that has dogged finance minister Rachel Reeves’ attempts to ignite growth, before an update to parliament on the economic outlook.
Gross domestic product fell by 0.1% in January, pulled down by a sharp drop in industrial output compared with December, the Office for National Statistics said on Friday.
A Reuters poll of economists had forecast a monthly expansion of 0.1%. While January’s drop only partially reverses a 0.4% expansion in December, the reading represents a disappointment for Reeves, whose number one mission is to get the economy growing.
“The world has changed and across the globe we are feeling the consequences,” Reeves said in response to Friday’s data.
On Thursday, U.S. President Donald Trump threatened to slap a 200% tariff on wine, cognac and other alcohol imports from Europe, opening a new front in a global trade war that has roiled financial markets and raised recession fears.
Reeves is due to present new economic and fiscal forecasts from the Office for Budget Responsibility in her March 26 Spring Statement, with weak growth and higher borrowing costs eating into the slim margin against which she met her fiscal rules in October’s budget.
Reeves has said the fiscal rules are non-negotiable and has indicated she will cut public spending if needed to ensure they are not broken.
Sterling weakened by around two tenths of a cent against the U.S. dollar after the data before largely recovering.
Over the three months to January, the economy expanded by 0.2%, the ONS said, slightly weaker than the 0.3% Reuters poll consensus.
“Following the lacklustre performance in the second half of 2024, growth remains fragile due to global and domestic uncertainty,” said Hailey Low, economist at the National Institute of Economic and Social Research think tank.
“It is crucial that the upcoming Spring Statement provides stability rather than adding to domestic uncertainty. Frequent policy U-turns risk undermining business and investor confidence at a time when clarity and consistency are most needed.”
Investec chief economist Philip Shaw said the underlying picture, looking past volatile swings in the monthly data, showed a slowly expanding economy, perhaps around 0.1% per month on average.
Manufacturing output slumped by 1.1% in January alone, with the metals and pharmaceutical sectors performing especially poorly, while the broader industrial sector was also hurt by a fall in oil and gas extraction.
Output in the dominant services sector grew by 0.1%, marking the third straight month-on-month expansion. Supermarket sales rose but spending at pubs and restaurants fell as Britons sought to save money by eating at home.
Construction output slipped by 0.2%, with the ONS citing anecdotal evidence from companies of stormy weather hitting construction activity.
(Reporting by Andy Bruce and David Milliken; Editing by Kate Holton, Timothy Heritage and Susan Fenton)
