BRITAIN’S economic growth fell unexpectedly in the first month of this year.
The Office for National Statistics (ONS) said Gross Domestic Product (GDP) edged down by 0.1% in January.
Economists had forecast gross domestic product (GDP) to rise by 0.1% in the first month of the year.
GDP grew by 0.4% in December, outperforming analysts expectations and marked a pick up following a 0.1% rise in November and 0.1% fall in October.
GDP is expected to have grown by 0.2% in the three months to January 2025, compared with the three months to October 2024.
This was mainly driven by growth in the services sector, which rose by 0.1% in January.
Meanwhile, the production sector shrank by 0.9% in January, while construction output fell by 0.2%.
GDP is one of the main indicators used to measure the performance of a country’s economy.
When it goes up, it means the economy is doing well, when it falls it means the economy has shrunk.
Liz McKeown, Director of Economic Statistics at the ONS, said the overall economic picture continues “to be of weak growth”.
She said: “The economy shrank a little in January but grew in the latest three months as a whole.
“The fall in January was driven by a notable slowdown in manufacturing, with oil and gas extraction and construction also having weak months.”
[bc_video account_id=”5067014667001″ application_id=”” aspect_ratio=”16:9″ autoplay=”” caption=”What is the Bank of England base rate and how does it affect me?” embed=”in-page” experience_id=”” height=”100%” language_detection=”” max_height=”360px” max_width=”640px” min_width=”0px” mute=”” padding_top=”56%” picture_in_picture=”” player_id=”default” playlist_id=”” playsinline=”” sizing=”responsive” video_id=”6349322895112″ video_ids=”” width=”640px”]But she added that services and retail saw strong performance in the first month of the year.
She said: “Services continued to grow in January led by a strong month for retail, especially food stores, as people at and drank at home more.”
Mel Stride MP, Shadow Chancellor of the Exchequer, said the figures show this government is a “growth killer”.
She said: “It is no surprise that growth is down again, following near no growth in the last three months of 2024.
[boxout headline=”‘Labour’s entire economic plan could fall apart'” intro=”Analysis by Martina Bet, Political Correspondent”]The Labour Government has bet everything on economic growth, calling it their “number one priority” and the key to funding schools, hospitals, and higher living standards.
But fresh figures showing the economy is shrinking—down 0.1 per cent in January— are throwing their credibility into question.
During the election, Sir Keir Starmer brushed off concerns about their spending plans, insisting growth would pay for everything.
Now, with GDP going the wrong way, that promise looks hollow.
The Chancellor had hoped backing Heathrow expansion would signal a boom, but instead, the economy slumped in the very same month.
Businesses are already feeling the squeeze, with Rachel Reeves’s National Insurance hike and minimum wage rise driving up costs.
Manufacturing, oil, gas, and construction all took a hit, and even the pound dipped as markets reacted.
Labour claims it is “restoring stability” and “increasing investment,” but firms are bracing for higher taxes, more red tape, and weaker growth.
If it can’t turn this around, Labour’s entire economic plan could fall apart.
“After consistently talking Britain down, raising taxes to record highs and crushing business with their extreme employment legislation this government is a growth killer.
“Labour inherited the fastest growing economy in the G7 but since they arrived business confidence has collapsed and jobs are being lost.”
She added that the Chancellor has just a fortnight until the Spring Statement to rethink her policies.
She said: “The Chancellor has 12-days until her emergency Budget – she must think again or hardworking people will continue to pay the price of a Labour government without any business experience.”
But Chancellor Rachel Reeves has pushed back at the claims and said she will restart economic growth.
She said: “The world has changed and across the globe we are feeling the consequences.
“That’s why we are going further and faster to protect our country, reform our public services and kickstart economic growth to deliver on our Plan for Change.
“And why we are launching the biggest sustained increase in defence spending since the Cold War, fundamentally reshaping the British state to deliver for working people and their families; and taking on the blockers to get Britain building again.”
What it means for your money
GDP measures the economic output of companies, individuals and governments.
If it is rising steadily, but not too much, it’s a sign of a healthy and prosperous economy.
This is because it usually means people are spending more, the Government gets more tax and workers get better pay rises.
It also generally means lower inflation as companies do not have to hike their prices to cover shortfalls in their budgets.
The Bank of England (BoE) also uses GDP and inflation as key indicators when it determines the base rate.
This decides how much it will charge banks to lend them money and is a way to try to control inflation and the economy.
Usually, when inflation is low, the BoE cuts interest rates to try and speed up the economy.
But the Government’s decision to increase employer National Insurance contributions (NICs) from 13.8% to 15% next month has raised fears inflation could rise and dampen GDP.
This is because there are expectations that businesses won’t be able to absorb the additional costs and will pass them on to consumers in the form of price rises.
The upcoming hike to employer NICs could also cause businesses to freeze recruitment or make staff redundant.
Inflation, which tracks the rate at which prices rise across the economy, has significantly declined to 3% compared to the highs seen in recent years.
But concerns are emerging that it may be starting to rise once again.
Meanwhile, economic growth in the UK remains sluggish.
Cutting the base rate is intended to encourage greater spending and investment, which would boost the economy.
All eyes will be on the Bank of England as it decides whether to cut interest rates next week.
Experts suggest the Bank’s Monetary Policy Committee will hold interest rates at 4.5% when it meets on March 20.
Economists at UBS anticipate three 25 basis point rate cuts this year, in May, August and November.
They suggest the Bank Rate will be at 3.75% by the end of the year.
The forecast is more optimistic than market expectations, which have priced in just over two cuts.
High street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.
If the base rate falls, interest rates on mortgages, loans and savings accounts typically fall too.
Mortgage lenders sometimes bring down rates in anticipation of the base rate falling.