Shrinking economy offers unhelpful backdrop for Rachel Reeves’s growth push
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Shrinking economy offers unhelpful backdrop for Rachel Reeves’s growth push
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 Economics editor

GDP goes in wrong direction as chancellor puts final touches to fiscal plans

The 0.1% decline in GDP in January signalled by the Office for National Statistics will be depressing news.

As Rachel Reeves prepares to announce her spring statement on 26 March, the economy appears to be going in the wrong direction – underlining the fact that the  is likely to have presented her with notably weaker forecasts than in October.

The monthly data is more volatile than the closely watched quarterly growth rates and can often be revised, but it appears the UK was stagnating even before Donald Trump began tearing up the global trading system.

As Suren Thiru of the Institute of Chartered Accountants in England and Wales put it: “The UK’s economic performance may have been similarly downbeat in February, with any boost from consumer spending amid strong wage growth and lower interest rates weakened by the brake on business activity from this torrent of global uncertainty.”

The ONS blamed weak manufacturing output, down by 1.1% on the month, and construction, which fell by 0.2%, for the poor GDP readout. Services output expanded, although only by 0.1%.

Within construction, the issue was a 0.7% decline in new work, the number crunchers said – a worrying signal given the government’s commitment to building 1.5m new homes over this parliament.

January’s decline in GDP followed 0.4% growth in December, and the ONS says that over the three months to January GDP expanded by 0.2% compared with the three months to October.

While that does not appear to point to a recession, it remains a relatively weak backdrop against which UK companies are having to wrestle with the uncertainty created by the White House’s on-off tariffs policies.

Businesses are also bracing themselves for the increase in employer national insurance contributions coming into force in April, alongside a significant rise in the national living wage.

Stuart Morrison, the research manager at the British Chambers of Commerce, said: “With businesses facing an impending avalanche of cost pressures, it’s unsurprising that growth is in trouble,” adding that the economy appeared to be “treading water”.



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