Why the economy is not yet listening to the chancellor’s battle cry

Since the turn of the year the chancellor Rachel Reeves has had a single priority, repeated loud and clear at every opportunity; growth.

It was a battle cry repeated from Beijing to Cape Town via Davos and repeatedly at home but, judging by figures for January, the economy is not yet listening.

A contraction in GDP of 0.1% was below economists’ consensus of a similar amount of growth in the first month of the year. Following a larger than expected positive bump of 0.4% in December, it confirms the trend established in the second half of 2024 of an economy bumping along at around zero.

Money latest: Boost for Brit holidaymakers over £6 ‘euro-visa’

The causes were a significant decline in production and manufacturing of metals, pharmaceuticals and oil and gas that a small increase in services growth, the engine of the British economy, could not offset.

Accommodation and pub and restaurant sales were down, with an increase in food sales indicating even more people than in a typically parsimonious January chose to entertain themselves at home.

There are caveats. This is just a single month’s data (and missing trade figures that the ONS has delayed after discovering “errors”) but both moves are cause for concern.

These numbers only cover the first ten days of Donald Trump’s second term and the impacts of his tariffs regime will not show up in the data for a few months yet, but it is safe to say increased costs on metals exports will be unhelpful.

The slowdown in hospitality also highlights the impending impact of Rachel Reeves‘ first budget, which takes effect next month. Business groups say the increase in employee National Insurance rates and thresholds, undeniably a cost to business, has had a chilling effect on plans for investment and the growth it might generate.

Ms Reeves knows this, and the negative sentiment in part explains a mantra that has seen support for a third runway at Heathrow and a second at Gatwick, and every area of public policy, from planning to clean power to defence spending, yoked to her growth mission.

The challenge for the chancellor is that these are strategic policy choices that will be judged over years not months, and she has only 12 days until she has to deliver a spring statement expected to show all her room for manoeuvre squeezed by low growth and higher borrowing costs.