The UK economy was unexpectedly shrinking at the beginning of 2025, when new pressure was accumulated on the government of Prime Minister Kiir Starmer due to the lack of momentum since he returned to power last summer.
The National Statistics Office said on Friday that GDP fell 0.1 % in January, driven by declines in manufacturing and construction. Economists expect a 0.1 % increase. This means that production is still barely greater than it was when the Labor Party won the victory of the ground collapse elections in July.
Treasury Advisor Rachel Reeves referred to the global troubled background of weakness, and warned that “the world has changed and around the world we feel the consequences.”
Reeves is under pressure to start its promise to increase growth after light economic indicators under labor. She is preparing to announce what is expected to be a realistic economic update on March 26, when official growth expectations are cut.
Friday numbers mean that the economy has contracted in four out of seven months since the Labor Party took office. GDP is only 0.3 % higher than it was in June.
The pound extended losses, decreasing by up to 0.2 % to $ 1.2924, as traders gradually added expectations to get more discounts at the interest rate. Traders now see 57 basis points for discounts this year.
The weakness in January was partially driven by the United Kingdom, which had a 10 -year strongest storm, indicating that some sectors could recover in February.
While economists expect to return to fixed growth this year, the risks facing expectations are escalating with the escalating Donald Trump war that sends the shares that send fears and raise fears of global contraction. Hope is that Britain’s great spending plans on infrastructure will support growth.
“In the aftermath of the dull performance in the second half of 2024, growth is still fragile due to global and local uncertainty,” said Hailey Lu, an economist at the National Institute for Economic and Social Research. “It is important for the next spring statement to provide stability rather than adding to local uncertainty.”
What Bloomberg Economic says …
“The sudden decrease in GDP in January is still leaving the British economy in its course for a modest apostasy in the first quarter after a sharp slowdown in the second half of 2024. Our view will be that growth will slightly enhance over 2025. We still believe that the risks for lowering the central bank reducing rates faster than we expect.”
– Read the reaction of Ana Andrade and Dan Hanson on the station
The Labor Party has revealed a set of policies to help it meet its promise to enhance growth, including construction projects and controversial green developments. However, the growth was incomplete in the second half of last year and the indicators of feelings that were stood after a heavy tax budget in October.
ONS said that production decreased in eight of the 13 manufacturing sector in January, with the production of minerals and pharmaceutical preparations that suffer from the largest decreases. She said that the anecdotal evidence indicates that the construction affects storms, rain and snow during the month. Oil and gas production also decreased.
The fall was partially compensated by 0.1 % growth in services, which is the largest part of the British economy. Retirement merchants in January recorded strong thanks to people who eat frequently at home, according to The ONS.
The Bank of England expects that the economy will continue to expand at a lukewarm, which expects 0.7 % expansion in 2025 after an increase of 0.9 % last year. In the face of unconfirmed expectations, BOE price measures are expected to leave interest rates next Thursday and warn markets of gradual discounts only.
“We doubt that bad news about GDP will be sufficient to persuade England Bank to reduce interest rates at its meeting next week,” said Thomas Bug, Economist at RSM UK. “Smooth the fluctuations from month to month and the economy picks some momentum, which should calm down concerns about slipping in the UK to recession.”
Officials balance the need to support the stagnant economy against the signs of stubborn inflationary pressures and increase uncertainty. They have put a sign of the threat of customs tariffs and the impact of increasing work on employer salaries taxes on the job and prices market.
This story was originally shown on Fortune.com
