U.K. Economy Unexpectedly Contracts, Posing New Challenge to Government

The U.K. economy unexpectedly shrank in the first month of the year, the latest frustration for a relatively new government that has pledged to bring an end to a decade-and-a-half of stagnation.

Gross domestic product was 0.1% lower in January than in the final month of 2024, the Office for National Statistics said Friday, weaker than the 0.1% rise expected by a consensus of economists. It also marks a slowdown from the 0.4% recorded in December.

Despite the economy’s continued struggles, the Bank of England is expected to leave its key interest rate unchanged when it meets next week. The annual rate of inflation jumped to 3% in January and is set to rise further over coming months.

Weaker-than-expected growth means tax revenues are likely to be lower than the government anticipated, adding to the challenges facing Treasury Chief Rachel Reeves as she prepares to announce new budget plans later this month.

“The U.K. economy is stuck in the slow lane,” Scott Gardner, investment strategist at digital wealth manager Nutmeg, said. “This latest data just goes to show the mountain to climb for Chancellor [Reeves] to reclaim momentum and get Britain growing at pace in 2025.”

There appears to be little hope of respite soon. U.K. firms’ activity expectations for this year declined in February, in contrast with a mild improvement globally, according to an S&P survey published this week.

Private-sector businesses are set to shrink their workforces as profit outlooks darken, with S&P’s index of employment expectations turning negative for the first time in more than 15 years outside the pandemic lockdowns of mid-2020.

“It is also the only time aside from the pandemic where firms have forecast simultaneous cuts to employment, capital expenditure and research and development, demonstrating the gloomy outlook for U.K. business investment in 2025,” David Owen , senior economist at S&P Global Market Intelligence, said.

The BOE last month halved its forecast for economic growth in 2025 to 0.75%. However, since it currently expects 0.1% growth for the first quarter, the January data suggests the U.K. might have an even weaker start to the year.

The government’s fiscal watchdog is also set to cut its own forecasts later this month. Britain’s economy grew 0.9% in 2024 as a whole, compared to 2.8% in the U.S.

Adding uncertainty to the forecasts are new tariffs that the Trump administration could impose on both the U.K. and neighboring European Union, a move that would curtail growth further.

“The U.K.’s economic performance may have been similarly downbeat in February, with any boost from consumer spending amid strong wage growth and lower interest rates weakened by the brake on business activity from this torrent of global uncertainty,” Suren Thiru , economics director at the Institute of Chartered Accountants in England and Wales, said.

The economy was dragged in January by a 1.1% drop in manufacturing output, a sector that could bear the brunt of any trade barriers.

President Trump has already imposed 25% tariffs on all steel and aluminum imports, including those from the U.K. Exports of steel from the U.K. to the U.S. in 2024 was worth around 370 billion pounds, or around $480 billion, according to trade association U.K. Steel.

Prime Minister Keir Starmer on Wednesday said that the U.K. will “keep all options on the table” in response to the tariffs.

A new investment fund targeting celebrity-founded consumer brands has secured US$40 million in commitments and is rapidly approaching its US$50 million fundraising target, signalling growing investor appetite for alternative opportunities beyond traditional asset classes.

The Global Talent Fund, which has a maximum raise of US$100 million, focuses on building and investing in consumer businesses alongside celebrities, athletes, and influential personalities who play an active role as co-founders rather than simply endorsing products.

The strategy is based on the belief that changes in consumer behaviour, particularly the rise of social media and digital engagement, have fundamentally altered how brands are built and scaled.

GTF founding partner Jeremy Hunt, who is helping lead the fund’s strategy, said consumers increasingly feel connected to personalities they follow online and are more willing to support products developed by those individuals.

“Consumers are searching for content to engage with, and when a celebrity they like or follow takes them on the journey of creating a product or brand, they genuinely feel part of that process,” he said.

The fund is targeting high-growth consumer sectors including wellness, hydration, beauty and recovery, areas Hunt believes continue to benefit from strong global demand and ongoing innovation.

Rather than backing celebrity endorsement deals, the fund is seeking businesses where talent is deeply involved in product development, brand creation and long-term growth.

According to Hunt, authenticity remains one of the biggest differentiators between successful celebrity-backed brands and those that fail.

“The consumer can see clearly if someone is simply being paid to promote a product,” he said. “The winners are typically the brands where the celebrity has genuinely helped build the business from the ground up.”

The model has attracted support from several prominent Australian investors and business families, reflecting broader interest in alternative investments with global growth potential.

Hunt said consumer brands offered a level of tangibility that many investors found appealing.

“Consumer brands are what we touch, feel, smell and taste every day,” he said. “Our investors understand the growth potential in the model, but they also want to be part of the journey.”

The fund’s rapid progress towards its fundraising target comes amid growing recognition that celebrity influence, when combined with strong commercial execution and scalable business models, can create significant enterprise value.

With several high-profile celebrity-founded businesses generating billion-dollar exits in recent years, supporters of the strategy believe the opportunity remains in its early stages.

U.K. Economy Unexpectedly Contracts, Posing New Challenge to Government

Gross domestic product was 0.1% lower in January than in the final month of 2024.

With US$40 million already committed, the Global Talent Fund is attracting investor attention with a strategy focused on building globally scalable consumer brands alongside high-profile talent.