UK economy unexpectedly shrinks in January

(Sharecast News) - The UK economy unexpectedly shrank in January, according to figures released on Friday by the Office for National Statistics. Gross domestic product contracted by 0.1% following 0.4% growth in December, and versus expectations for 0.1% growth.

The figures showed that production output fell by 0.9% on the month in January following a 0.5% increase in December 2024. This was due mainly to a 1.1% fall in manufacturing output.

ONS director of economic statistics Liz McKeown said: "The fall in January was driven by a notable slowdown in manufacturing, with oil and gas extraction and construction also having weak months.

"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."

Paul Dales, chief UK economist at Capital Economics, said the contraction in real GDP in January highlights the weakness of the economy before the full effects of the rise in business taxes and the uncertain global backdrop is felt.

"Overall, these figures don't do much to change our forecasts that the economy will grow by just 0.1 q/q (or perhaps 0.2% q/q) in Q1 and by only 0.7% in 2025 as a whole," he said. "With the prospect of higher taxes from April having left business sentiment on the floor and the global backdrop deteriorating, the economy is unlikely to strengthen much from here."