London (AP) — The British economy faced an unforeseen contraction in January, adding pressure on Treasury Chief Rachel Reeves ahead of a crucial update on public finances later this month. Official data released on Friday revealed a 0.1% decline in economic output for the world’s sixth-largest economy, contrary to expectations of a slight uptick following December’s 0.4% growth.
The Office of National Statistics attributed the lackluster performance to adverse weather conditions affecting manufacturing and construction sectors, despite a resilient showing by the dominant services sector, which contributes significantly to the British economy. While monthly figures are known for their volatility and potential revisions, this contraction underscores the challenges faced by the Labour government, which assumed office last July after a 14-year stint in opposition.
Prime Minister Keir Starmer has prioritized boosting economic growth in the U.K. over the next five years, seeking to improve living standards and support public services starved of funds. However, the country’s growth has been subpar since the global financial crisis of 2008-9, and the Labour government’s popularity has waned since its electoral triumph in July.
Critics point to Treasury Chief Reeves as a factor in the economic slowdown, accusing her of pessimism upon taking office and levying higher taxes, particularly on businesses. In response to the January figures, Reeves pledged to reverse more than a decade of poor performance and accelerate initiatives to stimulate growth.
Recent proposals from Reeves include supporting the expansion of London’s Heathrow Airport and establishing a technology hub resembling Silicon Valley between Oxford and Cambridge. She also aims to reset the U.K.’s economic ties with the European Union post-Brexit and highlights the growth potential of increased defense spending.
The recent economic decline creates a challenging backdrop for Reeves as she prepares to present a budget update to Parliament on March 26. Due to sluggish growth impacting tax revenues and relatively high borrowing rates, she is anticipated to announce spending cuts to adhere to fiscal regulations.
Mel Stride, Treasury spokesperson for the opposition Conservative Party, criticized the government as a “growth deterrent,” citing tax hikes and proposed adjustments to employment regulations as hindrances to economic prosperity.
