Investing.com - The U.K. economy surprisingly contracted in the first month of the year, piling the pressure on the Bank of England to continue easing monetary policy.
Data released earlier Friday by the Office for National Statistics showed that U.K. gross domestic product contracted by 0.1% in January - a sharp drop from the 0.4% growth seen in December, and below the 0.1% growth that had been expected.
On an annual basis, the U.K. economy grew by a meager 1.0% in the first month of the year, retreating from growth of 1.5% seen in the final month of last year.
The U.K. economy surprisingly grew by 0.1% between October and December, surpassing forecasts of a 0.1% decline, data showed last month, easing worries that the sixth largest economy would fall into recession early in 2025.
However, it’s clear that significant growth remains hard to find, as data released in February showed that GDP per head - which takes into account the growing population - fell by 0.1% in the final three months of 2024, and across the year as a whole.
The Bank of England cut interest rates in early February by 25 basis points, reducing its base rate to 4.5% from 4.75%, a continuation of the recent trend toward easing borrowing costs after rates reached a 16-year high.
However, the U.K.’s latest inflation data for the 12 months leading into January 2025 showed CPI inflation running at 3.0%.
This is 0.5% higher than December’s data and 1.0% higher than the Bank of England’s target of 2.0%, indicating the difficulties the Bank has in balancing rising inflation with a struggling economy.
The U.K. central bank downgraded its growth forecasts for 2025 at its last meeting, halving its projection from 1.5% to 0.75%.