Is A Recession Finally Coming as UK GDP Falls 0.1%?

This morning the Office for National Statistics (ONS) release figures for the UK’s Gross domestic product (GDP) for January 2025.  GDP is the value of goods and services produced in the UK and is an estimate of contraction or growth in the UK economy.

UK GDP has fallen by 0.1% when it was widely forecast to have grown by 0.1% and 0.4% growth in December.  Many commentators have suggested this was a surprise; we beg to differ and have been forecasting an economic slowdown across the

UK, Europe and North America for some time.

GDP is down due to a huge fall in manufacturing output of 0.9%.  This means there has been some growth in other sectors, but manufacturing is down as UK businesses plan for massive Employer National Insurance Contribution rises to 15% and a cut in the start point that employers NIC is paid on earnings above £5,000 pa (the secondary threshold - ST) from April 2025 rather than the current £9,100 ST.

In addition, national living and minimum wages are increasing dramatically from April, putting more pressure on employers to scale back pay rises, put prices up and downgrade recruitment plans and indeed look to redundancies.  In our opinion, this slowdown was no surprise despite our beloved Chancellor believing it would not have that much impact.

Comment

Recession may be on its way and the US tariff war may not help in addition to the Chancellor needing to raise even money to fund defence spending.  There is an interesting two weeks to come:

• Next week – Bank of England interest rate decision – will they hold or increase?  We think there is little chance of a decrease.
• Week After – Chancellor Rachel Reeves’ Spring Statement (mini-Budget) or 26 March and we expect more pain on the taxation front as well as cuts to welfare spending.