BRITAIN’S economy unexpectedly shrank in January, official data revealed today in a fresh blow to Chancellor Rachel Reeves ahead of her Spring Statement.

The Office for National Statistics (ONS) reported a 0.1 per cent in GDP in the first month of the year, the latest available data, which it said was driven by a sharp decline in manufacturing.

Economists had predicted slight growth and the drop follows a 0.4 per cent increase in December.

Labour has made economic growth its key priority since taking office last year, but progress has been slow.

GDP rose by 0.2 per cent over the three months to January driven by growth in the services sector, the ONS said.

Ms Reeves, set to deliver her Spring Statement on March 26, faces increasing pressure as borrowing costs and weak growth raise concerns about Labour’s mooted spending cuts.

Experts warn she may struggle to meet her fiscal rules while balancing the impact of tax rises which are set to take effect in April.

Unite general secretary Sharon Graham said securing good jobs for the future along with collective bargaining through trade unions is “by far the best route to growth.”

She said: “Workers spend their wages in their local economies — they don’t send their money to the Cayman Islands.

“If we are serious about improving the economy, the government needs to move quicker and more decisively on improving jobs, pay and conditions — we can’t afford to wait for the investment, employment laws and joined-up industrial strategy that the country needs.

“We won’t get growth by sitting on our hands.”

TUC general secretary Paul Nowak said that the government’s approach is “taking us in the right direction” but warned there is “still much more to do.” 

“Creating secure, decently paid jobs — the bedrock of a strong and resilient economy — will play a crucial role in reviving finances for families and the country,” he said.

On the upcoming Spring Statement, Mr Nowak said the figures show the need for public investment to “bring our economy back on track.” 

Positive Money senior policy and advocacy manager Ellie McLaughlin criticised the proposed cuts to welfare and green investment, arguing that taxing wealth and windfall profits from industries like banking would be a fairer way to balance the books.

Ms Reeves said the government is determined to “turn around the poor performance of more than a decade.”