The UK economy unexpectedly shrank at the start of 2025, piling fresh pressure on Prime Minister Keir Starmer’s government over the lack of momentum since Labour returned to power last summer.

Gross domestic product fell 0.1% in a storm-hit January, driven by declines in manufacturing and construction, the Office for National Statistics said Friday. Economists had expected a 0.1% increase. It means output is still barely larger than when Labour won a landslide election victory in July.

Chancellor of the Exchequer Rachel Reeves pointed to the global turbulent backdrop for the weakness, warning that “the world has changed and across the globe we are feeling the consequences.”

Reeves is under pressure to start delivering on her promise to boost growth after a dismal run of economic indicators under Labour. She is preparing to announce what’s expected to be a sobering economic update on March 26, when official growth forecasts may be trimmed.

Friday’s figures mean the economy has contracted in four out of the seven months since Labour took office. GDP is only 0.3% higher than it was in June.

The pound extended losses, dropping as much as 0.2% to $1.2924 as traders incrementally added to expectations for more interest-rate cuts. Traders now see 57 basis points of reductions this year.

The weakness in January was partly driven by the UK being hit by the strongest storm for 10 years, suggesting that some sectors could rebound in February.

While economists are predicting a return to steady growth this year, risks to the outlook are mounting with Donald Trump’s escalating trade war sending stocks crashing and triggering fears of a global downturn. The hope is that Britain’s plans for big spending on infrastructure will underpin growth.

“Following the lackluster performance in the second half of 2024, growth remains fragile due to global and domestic uncertainty,” said Hailey Low, economist at the National Institute of Economic and Social Research. “It is crucial that the upcoming Spring Statement provides stability rather than adding to domestic uncertainty.”

What Bloomberg Economics Says…

“The surprise drop in January’s GDP still leaves the UK economy on course for a modest rebound in the first quarter after a sharp slowdown in the second half of 2024. Our view is growth will strengthen a little over the course of 2025. If data continues to disappoint, though, it will be hard for the Bank of England to stick with its gradual approach to policy easing. We still think the risk is for the central bank cutting rates faster than we’re expecting.”

—Read Ana Andrade and Dan Hanson’s REACT on the Terminal

Labour has unveiled a raft of policies to help it meet its promise of boosting growth, including unblocking building projects and green-lighting controversial developments. However, growth was patchy in the second half of last year and sentiment indicators nosedived after a tax-heavy budget in October. 

The ONS said that output fell in eight of the 13 manufacturing sectors in January, with the production of metals and pharmaceuticals experiencing the largest declines. Anecdotal evidence points to construction being hit by storms, rain and snow during the month, it said. Oil and gas production also declined. 

The falls were partly offset by 0.1% growth in services, the largest part of the UK economy. Retailers recorded a strong January thanks to people eating more frequently at home, according to the ONS.

The BOE expects the economy to continue expanding at a tepid pace, predicting a 0.7% expansion in 2025 after last year’s 0.9% rise. Facing an uncertain outlook, BOE rate-setters are expected to leave interest rates on hold next Thursday and warn markets of only gradual cuts.

“We doubt the bad news on GDP will be enough to convince the Bank of England to cut interest rates at its meeting next week,” said Thomas Pugh, economist at RSM UK. “Smooth out the month-to-month volatility and the economy is picking up some momentum, which should allay fears about the UK slipping back into recession.”

Officials are balancing the need to support a stagnant economy against signs of stubborn inflationary pressures and heightened uncertainty. They have flagged the threat of tariffs and the impact of Labour’s increase in employer payroll taxes on the jobs market and prices.

This story was originally featured on Fortune.com

Source link

Federal agencies will begin to vacate hundreds of offices across the country this summer under a frenetic and error-riddled push by Elon Musk’s budget-cutting advisers to terminate leases that they say waste money.

Musk’s Department of Government Efficiency maintains a list of canceled real estate leases on its website, but internal documents obtained by The Associated Press contain a crucial detail: when those cancellations are expected to take effect. The documents from inside the General Services Administration, the U.S. government’s real estate manager, list dozens of federal office and building leases expected to end by June 30, with hundreds more slated over the coming months.

The rapid pace of cancellations has raised alarms, with some agencies and lawmakers appealing to DOGE to exempt specific buildings. Several agencies are facing 20 or more lease cancellations in all, including the IRS, the Social Security Administration, the U.S. Department of Agriculture and the U.S. Geological Survey.

Many of the terminations would affect agencies that aren’t as well-known but oversee services critical to many Americans.

They span from a Boise, Idaho, office of the Bureau of Reclamation — which oversees water supply and deals with disputes across the often-parched American West — to a Joliet, Illinois, outpost of the Railroad Retirement Board, which provides benefits for railroad workers and their survivors.

The lease terminations do not mean all the locations will close. In some cases, agencies may negotiate new leases to stay in place, downsize their existing space or relocate elsewhere.

“Some agencies are saying: ‘I’m not leaving. We can’t leave,’” said Chad Becker, a former GSA real estate official who now represents building owners with government leases at Arco Real Estate Solutions. “I think there’s going to be a period of pushback, a period of disbelief. And then, if necessary, they may start working on the actual execution of a move.”

Errors add to confusion

DOGE says GSA has notified landlords in recent weeks that it plans to terminate 793 leases, focusing mostly on those that can be ended within months without penalty. The group estimates those moves will save roughly $500 million over the terms of the leases, which in some cases were slated to continue into the 2030s. The Bureau of Reclamation cancellation in Boise, for instance, would take effect Aug. 31 and is expected to save a total of $18.7 million through 2035.

But DOGE’s savings estimates — a fraction of Musk’s $1 trillion cost-cutting goal — have not been verified and do not take into account the costs of moves and closures. The group has released no information about what they will mean for agencies.

“My initial reaction is this is just going to cause more chaos,” said Jim Simpson, an accountant in Arizona who helps low-income people file taxes and serves on an IRS panel that advocates for taxpayers. “There’s a lot of room to help with government efficiency, but it should be done surgically and not with a chainsaw.”

Simpson said he was surprised to learn that dozens of IRS offices, including local taxpayer assistance centers, were facing upcoming lease cancellations. He refers clients there to get paperwork to file returns and answer IRS inquiries, and he said losing services would “cause a lot of anxiety” and delay refunds.

Plans to cancel the leases at several of the IRS centers and other sites were in error and have been rescinded, according to a person with direct knowledge of the changes who spoke to the AP on the condition of anonymity in order to avoid retaliation. Those changes are not yet reflected on DOGE’s list, which only removed one and added dozens more in its latest update published Thursday.

The GSA walked back the cancellation of a Geological Survey office in Anchorage, Alaska, for instance, after learning it did not have termination rights, according to the person familiar with the matter.

Rep. Tom Cole, R-Okla., said Monday that he’d convinced DOGE to back off lease terminations planned for the National Weather Center in Norman, a Social Security office in Lawton and the Indian Health Services office in Oklahoma City. But all three leases remained on DOGE’s list of cancellations as of Thursday.

GSA’s press office didn’t respond to inquiries.

The real estate market is blindsided

While there was already a bipartisan push to reduce the government’s real estate footprint, the mass cancellations blindsided an industry known for its stability.

Landlords who had been expecting government agencies to remain tenants, for several more years in some cases under their existing leases, were stunned. Some agencies learned from building managers, not their federal partners, that their leases were being canceled, according to real estate managers.

Becker, whose firm is tracking the DOGE lease cancellations, and other observers said they expect some agencies will be unable to move their personnel and property out of their spaces within such tight timelines. That may force some agencies to pay additional rent during what’s known as a holdover period, undermining DOGE’s stated goal of saving taxpayer money.

The Building Owners and Managers Association, which represents the commercial real estate industry, told landlords in a recent advocacy alert to be prepared to seek payment from any federal government tenants who stay beyond their leases.

Many affected agencies aren’t speaking up

Asked about plans for buildings with leases that will soon expire, the IRS did not respond. A Social Security Administration spokesperson downplayed the impact of its offices losing leases, saying many were “small remote hearing sites,” did not serve the public, were already being consolidated elsewhere or planned for closure.

Several other agencies provided little clarity — saying they were working with GSA to consider their options, in statements that were nearly identical in some cases.

But a spokesperson for the Railroad Retirement Board expressed concern over the upcoming lease cancellations of its offices in Joliet, Illinois, and eight other states, saying it was working to “maintain a public-facing office presence for the local railroad community.”

Government Accountability Office official David Marroni told a congressional hearing last week that the push to unload unnecessary federal real estate was “long overdue,” saying agencies have for too long held on to unnecessary space. But he warned the downsizing must be deliberate and carefully planned to “generate substantial savings and mitigate the risk of mistakes and unexpected mission impacts.”

That process had already started before Musk’s team arrived, with the federal government’s real estate portfolio steadily declining over the last decade. Indeed, critics of DOGE say if it were truly interested in cost-cutting it could learn from GSA, whose mission even before Trump took office was to deliver “effective and efficient” services to the American public.

A law signed by former President Joe Biden before he left office in January directed agencies to measure the true occupancy rates of leased spaces by this summer. Those that did not meet a target of 60% use rate over time would be directed to dispose of their excess space.

”There is a logical and orderly way to do this,” Rep. Greg Stanton, an Arizona Democrat, said at last week’s hearing. Instead, he said, DOGE is pursuing a reckless approach that threatens to harm the delivery of public services.

Industry observers cautioned that each situation is different, and it will take months or years to understand the full impact of the lease cancellations.

“It really depends on the terms. But it is a shock, there is no question, that all of a sudden, boom, in six weeks all these things have happened,” said J. Reid Cummings, a professor of finance and real estate at the University of South Alabama. “It’s like a blitzkrieg.”

This story was originally featured on Fortune.com