Britain’s economy unexpectedly contracted in January, extending a run of stop-start data that has dogged finance minister Rachel Reeves’ attempts to ignite growth, before an update to parliament on the economic outlook.
Gross domestic product fell by 0.1 per cent in January, pulled down by a sharp drop in industrial output compared with December, the Office for National Statistics said on Friday.
A Reuters poll of economists had forecast a monthly expansion of 0.1 per cent.
While January’s drop only partially reverses a 0.4 per cent expansion in December, the reading represents a disappointment for Reeves, whose number one mission is to get the economy growing.
“The world has changed and across the globe we are feeling the consequences,” Reeves said in response to Friday’s data.
On Thursday, US President Donald Trump threatened to slap a 200 per cent tariff on wine, cognac and other alcohol imports from Europe, opening a new front in a global trade war that has roiled financial markets and raised recession fears.
Reeves is due to present new economic and fiscal forecasts from the Office for Budget Responsibility in her March 26 Spring Statement, with weak growth and higher borrowing costs eating into the slim margin against which she met her fiscal rules in October’s budget.
Reeves has said the fiscal rules are non-negotiable and has indicated she will cut public spending if needed to ensure they are not broken.
Sterling weakened by around two tenths of a cent against the US dollar after the data before largely recovering.
Over the three months to January, the economy expanded by 0.2 per cent, the ONS said, slightly weaker than the 0.3 per cent Reuters poll consensus.
Manufacturing output slumped by 1.1 per cent in January alone, with the metals and pharmaceutical sectors performing especially poorly, while the broader industrial sector was also hurt by a fall in oil and gas extraction.
Output in the dominant services sector grew by 0.1 per cent, marking the third straight month-on-month expansion.
Supermarket sales rose but spending at pubs and restaurants fell as Britons sought to save money by eating at home.
Construction output slipped by 0.2 per cent, with the ONS citing anecdotal evidence from companies of stormy weather hitting construction activity.