The downward direction of the economy follows growth of 0.4% in December 2024 and growth of 0.1% in November 2024. The fall in January was unexpected by experts – Trading Economics had predicted GDP would rise by 0.1% month-on-month.
The GDP decrease was mainly caused by a fall in the production sector – which decreased 0.9% month-on-month – after growth of 0.4% in December 2024.
Real GDP is estimated to have grown by 0.2% in the three months to January 2025, compared with the three months to October 2024, mainly because of growth in the services sector.
The January figures will come as a fresh blow for Chancellor Rachel Reeves, as the economy faces several headwinds at a time when her stated priority is securing economic growth.
Fears of job cuts in the UK, and political chaos elsewhere, are eroding consumer confidence, leading to more hesitation around spending as inflation persists. Meanwhile, the ongoing tit-for-tat approach to tariffs between the US and other nations threatens an era of higher inflation, making growth more difficult.
How life insurance can benefit your health and wellbeing over the decades
Sponsored by Post Office
Nicholas Hyett, investment manager at Wealth Club, said: “This is not the news the Chancellor would have wanted before this month’s Spring Statement, with the economy shrinking when it had been expected to show modest growth.
“The slowdown has been driven by a big slowdown in manufacturing output – unsurprising given the very uncertain outlook for exports with ever-changing tariffs. Services too has slowed dramatically, particularly in sectors like accommodation and food services, which expect to be hit hard by higher living wage and employer National Insurance contributions in April.
“That’s the really worrying thing about these numbers. Tariffs and increased labour costs were more worries than reality in January, the month covered by these numbers. Those worries will soon be transforming into realities. That leaves plenty of room for economic growth to deteriorate further, with far fewer catalysts to spark an economic recovery. We could be at the start of a long slow slide into recession.”
