Chancellor brought 'back down to Earth' by 0.1% drop in growth

GDP dropped by 0.1% in January after nearly half a percent growth in December as the Spring Statement edges closer

The accounting sector was one of the only positive growth areas in January, growing by 12.4% on the month to £4.1bn, which saw the services sector grow by 0.1% overall. This may come as no surprise as January is notoriously a busy month for accountants, but compared to January 2024, this January was up by 4.7% (£3.8bn in January 2024).

The services sector as a whole was worth £229bn last month, up 2% from January 2024.

Joe Nellis, economic adviser at MHS, said: ‘The 0.1% contraction of the economy in January has brought the Chancellor back down to earth after the surprisingly high 0.4% growth recorded in December.

‘The quicker the economy grows and the larger it is, the more income the government takes in the form of tax revenues. With the government’s fiscal plans reliant on a level of tax revenues provided by a growing economy, flatlining economic growth highlights a difficult dilemma ahead of the Spring Statement later this month.’

The accounting sector may have done well compared to the rest of the economy but was not the best performing area within the services sector, this came from retail, then R&D and rental and leasing.

Legal, telecoms and hospitality were down across the board.

Julie Matheson, partner at Kingsley Napley said: ‘These are positive figures to start the year especially considering the wider UK economy showed weaker performance than expected in January and even shrank a little.

‘Accounting has bucked the trend. However, as we warned at the end of last year, business confidence remains low. There are also a number of new global developments which may yet have an impact on the UK economy so accounting firm leaders should be planning accordingly and bracing themselves for a bumpy ride in 2025.’

Manufacturing production fell by 0.9% in January, holding back the majority of the economy, and backtracked on December’s growth of 0.5%. This was heavily influenced by the manufacturing sector, which declined by 1.1% in January.

Nine out of the 13 sub-sectors declined, leaving just four sub-sectors to carry the load, however they all showed minimal growth. The manufacturing of wood and paper products showed the most growth, at just 0.15%.

Lead economist at the CBI, Ben Jones, said: ‘There are signs that the drop in business and consumer economic confidence following the Autumn Budget is bottoming out. But downside growth risks remain from the potential for a softer labour market and an uptick in inflation.

‘Yesterday’s announcements to reduce regulatory burdens in a variety of sectors were welcome. But businesses are still struggling with high energy costs, increased labour costs and the possibility that the Employment Rights Bill makes hiring riskier and more costly still. ‘

Construction also slowed down in January, falling by 0.2%, the same figure as December. The main factor here was a fall of 0.7% of new work in the private commercial sector.

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