Rachel Reeves faced further humiliation today with figures showing the economy is shrinking. Experts warned Britain could tip into recession after GDP fell 0.1 per cent in January as production plunged despite the Chancellor’s high-profile push for growth.
It is a further crushing blow for the UK and lays bare the negative impact of Ms Reeves’ nightmare Budget. And it raises questions with looming headwinds from her massive national insurance raid and Donald Trump’s trade war. Ms Reeves is already facing a struggle to balance the books and ramp up defence spending amid the Ukraine crisis, with the Spring Statement due on March 26.
The Tories branded the government a “growth killer” following the gloomy figures.
But Ms Reeves blamed wider turbulence.
“The world has changed and across the globe we are feeling the consequences,” she said.
Asked during a visit to Scotland this morning whether Mr Trump’s tariffs attacks were hampering growth, Ms Reeves said: “I believe, this Government believes, in free and open trade, and will continue to make that point.
“We are in negotiations at the moment for an economic agreement with the United States to try and ensure that British exporters are supported to export all around the world, including to the United States, and to ensure that they don’t push up prices for UK consumers with more tariffs.”
ONS Director of Economic Statistics Liz McKeown 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.”
Shadow chancellor Mel Stride urged Ms Reeves to “think again” before the Spring Statement.
“It is no surprise that growth is down again, following near no growth in the last three months of 2024,” he said.
“After consistently talking Britain down, raising taxes to record highs and crushing business with their extreme employment legislation this government is a growth killer.
“Labour inherited the fastest growing economy in the G7 but since they arrived business confidence has collapsed and jobs are being lost.”
Julian Jessop, Economics Fellow at the Institute of Economic Affairs, said: “The latest official data are perhaps not as bad as they look, but they do confirm that the UK economy made a poor start to 2025.
“Nonetheless, this feeble rate would remain well short of the numbers baked into the OBR’s forecasts for last October’s Budget.
“And this is even before the main measures actually kick in next month.
“In short, the economy is on a knife edge, and the Chancellor could be about to tip the UK into a full-blown recession.”
Nicholas Hyett, Investment Manager at Wealth Club, warned of the risk that “recession starts here”.
“Tariffs and increased labour costs were more worries than reality in January, the month covered by these numbers,” he said.
“Those worries will soon be transforming into realities. That leaves plenty of room for economic growth to deteriorate further, with far fewer catalysts to spark an economic recovery. We could be at the start of a long slow slide into recession.”
