UK economy shrinks 0.1% in January following decline in factory output – business live | Business
Introduction: UK economy shrinks 0.1% in January following decline in factory output
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The UK economy unexpectedly shrank in January following a decline at factories.
GDP is estimated to have fallen 0.1% in January, mainly caused by a 0.9% fall in the production sector, according to the Office for National Statistics. This comes after 0.4% economic growth in December. Economists had expected the economy to grow by 0.1% in January.
It was a poor month for manufacturing and construction, both in decline, while the dominant service sector eked out meagre growth. The news dealt a blow to the chancellor, Rachel Reeves, ahead of her spring statement in two weeks’ time.
Monthly services output grew by 0.1% in January, following 0.4% growth in December, while construction output fell by 0.2% following a same-sized decline in December.
GDP is estimated to have grown by 0.2% in the three months to January, compared with the three months to October, mainly because of growth in the services sector.
Asian stock markets are mostly up, despite a sell-off on Wall Street sparked by Donald Trump’s tariff policies. Yesterday, Trump threatened to hit imports of wine, cognac and other alcohol from the European Union with a 200% tariff.
The escalating trade war dragged the S&P 500 on Wall Street more than 10% below its record, set just last month. A 10% decline from a recent peak is known as a “correction” — and Thursday’s 1.4% slide in the S&P 500, a key US stock market index, sent it to its first correction since 2023.
Gold surged through $3,000 an ounce last night, but is down slightly at $2,986 at present. The value of gold has nearly doubled in the past five years.
Chinese stocks led the gains in Asia amid expectations of policy support from Beijing, with top government officials set to hold a press briefing on Monday. The Shanghai exchange rose by 1.7% while the Shenzhen market bounced by 2.1%, and Hong Kong’s Hang Seng climbed by 2.2%. Japan’s Nikkei was up by 0.7%.
Stock market futures are pointing to a higher open in Europe and on Wall Street later.
There is some relief after top US Senate Democrat Chuck Schumer signalled his party would provide the votes to avert a government shutdown in the US.
The Agenda
Key events
Here’s some instant analysis from our economics editor Heather Stewart:
For a government that has made growth its overriding mission, the 0.1% decline in GDP in January signalled by the office for national statistics on Friday will be depressing news.
As Rachel Reeves prepares to deliver her spring statement on 26 March, the economy appears to be going in the wrong direction – underlining the fact that the Office for Budget Responsibility is likely to have presented her with notably weaker forecasts than in October.
These monthly data are more volatile than the closely-watched quarterly growth rates and can often be revised; but it appears the UK was stagnating even before Donald Trump began tearing up the global trading system.
The ONS blamed weak manufacturing output, down by 1.1% on the month, and construction, which fell by 0.2%, for the poor GDP readout. Services output expanded, though only by 0.1%.
Within construction, the issue was a 0.7% a decline in new work, the number-crunchers said – a worrying signal, given the government’s commitment to building 1.5m new homes over this parliament.
While it does not appear to point to a recession, that remains a relatively weak backdrop, against which the UK’s firms are now having to wrestle with the uncertainty created by the White House’s on-off tariffs policies.