The British economy unexpectedly shrank in January, continuing a pattern of inconsistent data challenging finance minister Rachel Reeves' efforts to boost growth before her upcoming economic report to parliament.
According to the Office for National Statistics, Gross Domestic Product declined by 0.1% in January, mainly due to a significant decrease in industrial production compared to December. This figure contradicted economists' expectations of a 0.1% monthly expansion.
Responding to the disappointing data, Reeves acknowledged the global impact on economies, stating, "The world has changed, and we are feeling the consequences."
The threat from U.S. President Donald Trump to impose a 200% tariff on European alcohol imports added to economic uncertainties, which have unsettled financial markets and raised recession concerns.
In her forthcoming presentation on March 26, Reeves will reveal updated economic and fiscal projections. Growing concerns about economic growth and increased borrowing costs following a modest 0.2% expansion over the three months to January have made meeting fiscal targets challenging.
As Sterling briefly weakened after the data release before stabilizing, economists like Hailey Low from the National Institute of Economic and Social Research are emphasizing the importance of stability in economic policies in the face of ongoing uncertainties.
Despite monthly fluctuations, Investec chief economist Philip Shaw highlighted a slow but steady economic growth trend of around 0.1% per month on average. Notably, manufacturing output dropped by 1.1% in January, primarily driven by weak performances in the metals and pharmaceutical sectors.
While service sector output increased by 0.1%, indicating three consecutive months of growth, construction output declined by 0.2%, attributed partly to adverse weather conditions affecting construction activities.