The UK economy shrank by 0.1% in January, a setback for UK Exchequer Chancellor Rachel Reeves ahead of the spring statement later this month.

In a surprise to City economists, who had predicted 0.1% growth, the Office for National Statistics data revealed on Friday that the services sector couldn’t compensate for a decline in the industrial sector, preventing growth from the previous month.

Manufacturing output fell by 1.1% in January 2025, reversing a 0.7% increase in December. Construction also struggled due to poor winter weather impacting housebuilders.

Yael Selfin, chief economist at KPMG UK, stated: “The UK economy starts the year on the back foot as global uncertainty casts a shadow on the outlook.”

In December, the economy grew by 0.4%, helping the final quarter of 2024 show a 0.1% rise and avoid two-quarters of zero growth.

The Bank of England’s monetary policy committee is expected to overlook the latest figures when it meets next week, with financial markets predicting interest rates will remain at 4.5%.

The National Institute of Economic and Social Research has forecast 0.4% growth for the first quarter of 2025, much higher than the Bank's estimate of only 0.1%.

UK food and drink exports to the EU down 34% since Brexit

In a related context, a report released on Friday revealed that British food and drink exports to the EU have fallen by 34% since Brexit, with volumes dropping to 6.37 billion kg in 2024, according to the Food and Drink Federation (FDF). Popular items like whisky, chocolate, and cheese remain in demand, but the overall decline is attributed to post-Brexit trading barriers.

While the UK struggles with this slump, other European countries such as the Netherlands, Germany, and Italy have increased their export volumes. The FDF points to new bureaucratic hurdles as the cause.

Meanwhile, food and drink imports to the UK reached a record £63.1bn in 2024, with EU imports rising 3.3% despite new border checks.

The EU remains the UK’s largest trading partner, accounting for nearly two-thirds of exports and three-quarters of imports, valued at nearly £45bn.

The FDF stated that food and drink imports to the UK face fewer checks than UK exports of similar products. It noted that small and medium-sized UK exporters are struggling the most to meet the EU's "more stringent" import regulations.

The FDF is urging the government to collaborate with the food and drink industry to adopt a strategic approach to EU trade relations and address "unnecessary barriers" hindering trade with Europe.

“These latest figures show the stark reality for the UK’s 12,500 food and drink businesses who are struggling to deal with the complexity and bureaucracy that comes when trading with Europe,” said Balwinder Dhoot, the director of industry growth and sustainability at the FDF, adding, “Government must prioritize working with the EU, and our industry, to remove as many of these barriers as possible.”

Global food export volumes grew by nearly 6% in 2024, as the UK began benefiting from free trade agreements, with UK exports to Australia rising by 9% to £429.5 mln in the first full year after the UK-Australia trade deal.

While Ireland and France remain the UK’s largest export markets, the US has moved into third place, driven by strong demand for British products like tea and biscuits.

The FDF hopes that a future UK-US trade deal will shield the food and drink sector from potential tariffs, especially amid recent US threats of a 200% tariff on wine and champagne from EU countries.

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