The UK economy unexpectedly contracted by 0.1% in January, defying forecasts of 0.1% growth. The decline was primarily driven by weakness in the manufacturing sector, as well as downturns in construction and oil and gas extraction.

Chancellor Rachel Reeves acknowledged the need to accelerate economic recovery, but the Conservatives criticized the government, calling its policies harmful to growth.

Despite the monthly decline, the economy grew by 0.2% over the past three months, with retail sales, especially food and beverages, helping to offset some losses. However, concerns remain as upcoming tax increases in April could further strain businesses.

Companies warn that higher National Insurance contributions, rising minimum wages, and reduced business rate relief may hinder their ability to offer pay raises and create jobs. The Bank of England has already lowered its growth forecast for 2025.

With the Spring Statement approaching, the government is expected to announce spending cuts, particularly in welfare, to align with budget rules. Critics argue these measures could stifle economic recovery, while businesses call for more support to drive sustainable growth.