A 0.1% contraction in GDP sparks concerns over future economic stability and growth prospects.
Concerns about a potential recession have intensified in the City of London following the release of troubling official figures showing a 0.1% decline in the UK’s GDP for January. This marked a stark contrast to the previous month’s 0.4% growth, highlighting a significant downturn that has shaken confidence in the nation’s economic outlook.
The fall in output was primarily driven by sharp declines in manufacturing and North Sea oil and gas production, with manufacturing output dropping by 1.1% and the oil and gas extraction sector suffering a 3.7% decrease. Analysts had initially predicted modest growth, making the actual performance in January a major disappointment for many. One expert described the economic figures as “a complete disappointment across the board.”
The figures, which do not yet account for the global market turmoil triggered by Donald Trump’s punitive tariffs, have put added pressure on the Bank of England to consider further interest rate cuts. The decline comes just weeks before the Chancellor’s Spring statement, where further austerity measures are expected as part of an effort to maintain fiscal discipline.
Despite a modest 0.1% growth in the services sector, largely driven by retail, particularly food stores, the overall economy contracted due to weak performance in manufacturing, construction, and energy extraction. Construction saw a 0.2% dip, which could be attributed to poor winter weather, while services were unable to compensate for the significant losses in the production sectors.
Liz McKeown, Director of Economic Statistics at the Office for National Statistics (ONS), noted that “The fall in January was driven by a notable slowdown in manufacturing, with oil and gas extraction and construction also experiencing weak months.” She added that retail services performed well, particularly in food stores, as more people ate and drank at home.
The UK’s economy still managed to show quarterly growth of 0.2% and annual growth of 1% for the three months leading to January. However, analysts like Jochen Stanzl, Chief Market Analyst at CMC Markets, have expressed concerns about the long-term implications of the decline in the production sector. He warned, “The structural decline in the production sector is particularly worrying, as it strikes at the heart of industrial value creation and could jeopardise long-term competitiveness.”
Investment experts are concerned that the challenges facing the economy—such as the looming impacts of tariffs and increasing labour costs—could lead to a prolonged period of stagnation. Nicholas Hyett, Investment Manager at Wealth Club, stated, “We could be at the start of a long, slow slide into recession.” This sentiment was echoed by Rob Morgan, Chief Investment Analyst at Charles Stanley, who pointed out that the economic outlook remains uncertain, with global inflation pressures and rising employer costs complicating any potential recovery.
As the UK grapples with these challenges, there are growing concerns that further deterioration could be on the horizon, with few positive catalysts to reverse the negative trends.
