UK economy shrinks unexpectedly in blow to Rachel Reeves

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The UK economy contracted by 0.1% in January, dealing a blow to Rachel Reeves before the spring statement later this month.

In a surprise to City economists, who expected 0.1% growth in January, the Office for National Statistics data showed the services sector failed to offset a decline in the industrial sector and maintain growth from the previous month.

In December the economy expanded by 0.4%, helping the last quarter of the year to register a 0.1% rise and avoid two quarters of zero growth.

The Bank of England’s rate-setting monetary policy committee is forecast to be unmoved by the latest figures when it meets next week. Financial markets expect interest rates will be kept on hold at 4.5%.

The National Institute of Economic and Social Research has forecast that the economy will grow by 0.4% in the first quarter of 2025, much higher than the Bank, which has estimated growth will be limited to only 0.1%.

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