UK economy contracts 0.1% ahead of Spring Budget

The UK economy unexpectedly shrank by 0.1% in January, a setback for the government as Chancellor Rachel Reeves prepares for the Spring Statement.
This contraction, driven primarily by a decline in manufacturing, falls short of economists’ predictions of 0.1% growth.
While monthly figures can be volatile, with the Office for National Statistics (ONS) reporting 0.2% growth over the three months to January, the overall picture indicates sluggish economic performance. ONS director Liz McKeown highlighted weak performances in construction and oil and gas extraction, partially offset by increased retail spending, particularly in food shops.
The contraction raises concerns about the government’s ability to boost growth, a key priority. Ms Reeves acknowledged the need to go “further and faster” on the economy, while the Conservatives criticised the UK government’s economic management.
With tax rises scheduled for April, including increased National Insurance contributions, alongside rising minimum wages and reduced business rates relief, businesses fear further economic slowdown. Added uncertainty stems from US tariffs and pressure to increase defence spending.
The Bank of England has already halved its growth forecast for the year, and the Office for Budget Responsibility is expected to follow suit. This necessitates potential cuts to government spending, with significant welfare budget reductions anticipated.
Scottish Friendly savings specialist Kevin Brown said: “These are not the figures the Chancellor would have wanted ahead of a raft of tough spending decisions.
“She needs to find money for higher defence spending alongside the domestic demands of an ageing population and a rising benefits bill. Growth would have given her some reprieve, but the UK economy continues to flounder – remaining flat and quite vulnerable.
“Significant challenges remain and the knock-on effect for UK households remains uncertain. But wherever possible, if families are able to save and invest what they can, they will be able to provide their own certainty of greater financial resilience for the future.”