UK economy shrinks in first month of 2025 in setback for Rachel Reeves

THE UK economy has shrunk in the first month of 2025 after a month of growth.

Official figures showed gross domestic product (GDP) fell by 0.1% in January amid a sharp decline in the manufacturing sector, surprising economists who had forecast a slight increase.

It follows 0.4% growth in GDP in December, the Office for National Statistics (ONS) said, and comes as a blow to the Chancellor before her spring statement on March 26.

Chancellor Rachel Reeves  – who was visiting Scotland as the latest figures were announced – vowed to “turn around the poor performance of more than a decade”.

She refused to be drawn into saying whether uncertainty caused by Donald Trump’s tariffs had influenced the slump in January, but said she “believes in free and open trade”.

While the immediate pressure on Reeves eased after a jump in growth in the last month of 2024, the latest figures mark another setback.

The ONS said the weak performance in the manufacturing and construction sectors was partly dampened by poor weather in January.

Commenting, Liz McKeown, ONS' director of economic statistics, said: “The economy shrank a little in January but grew in the latest three months as a whole, with the overall picture continuing to be of weak growth.  

“The fall in January was driven by a notable slowdown in manufacturing, with oil and gas extraction and construction also having weak months.  

“However, services continued to grow in January led by a strong month for retail, especially food stores, as people ate and drank at home more.” 

Chancellor Rachel Reeves (Image: Jordan Pettitt) Meanwhile, Reeves said: “The world has changed and across the globe we are feeling the consequences. That's why we are going further and faster to protect our country, reform our public services and kickstart economic growth to deliver on our Plan for Change.  “And why we are launching the biggest sustained increase in defence spending since the Cold War, fundamentally reshaping the British state to deliver for working people and their families; and taking on the blockers to get Britain building again.”

Trades Union Congress general secretary Paul Nowak said the figures “show the need for public investment”.

He said: “Stronger growth is the best way to secure sustainable public finances.”

The Chancellor is set to deliver her spring statement on March 26, where increased borrowing costs and weak growth are likely to require spending cuts in order to meet her commitments on managing the public finances, experts have warned.

There are still worries over whether she will meet her fiscal rules, as well as the impact on businesses and jobs from employment tax rises in the October Budget which come in at the start of April.

Among the expected cuts is £6 billion slashed from the welfare budget, primarily impacting disability and unemployment benefits.