Economy shrank by 0.1% in January – industry reaction

Latest data from Office for National Statistics (ONS) showed that the economy fell 0.1% in January. GDP had been expected to rise 0.1% month-on-month.

Services output grew 0.1% month-on-month whilst construction output fell 0.2% month-on-month. Production fell 0.9% month-on-month.

Commenting on today’s GDP figures for January, ONS Director of Economic Statistics Liz McKeown 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.

“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.”

George Lagarias, Chief Economist at Forvis Mazars said “Headwinds may be blowing harder, but that does not mean we should altogether ignore the tailwinds.

“It should be no surprise that British growth is decelerating, amid a global market correction, stubborn prices, weak external demand and peak policy uncertainty. Manufacturing is slowing down fast and job losses in the sector are the steepest in nearly five years. Consumers and businesses are reticent to make big capital spending decisions, as they fear the worsening global economic landscape.

“However, we feel that conditions may improve. Trade wars will probably eventually level off. Europe, meanwhile, Britain’s biggest trade partner, is eying improved growth conditions as Germany sheds its fiscal restraints. Deregulation could help businesses and increase credit.”

Anna Leach, Chief Economist at the Institute of Directors, said “January’s growth disappointment was driven by a broad-based decline in manufacturing. The ONS highlight weakness in the manufacture of motor vehicles, who are facing profound trade uncertainty on top of pre-existing policy uncertainty. Meanwhile, although services grew, reference to people eating and drinking at home more rather than at pubs and restaurants point to a straightened and cautious consumer.

“As we move further into 2025, headwinds to growth are rising – both in the UK and globally. Cost concerns are rising as UK business again face pipeline inflationary pressures driven by rising taxes, energy prices and for some sectors, the new packaging levy. Global uncertainty has risen sharply as US tariff policy and reciprocal actions make it difficult for businesses to predict market demand and set pricing. Amidst this complexity, it’s welcome to see the Planning and Infrastructure Bill published alongside moves to remove other blockers to growth through the scrapping of some regulatory bodies. These policies are a good start, but the private sector remains hamstrung by Budget measures that increase the cost and risk of employment. A weakened private sector makes it all the more important to lift public sector productivity. This must be a driving priority for the Spending Review.”