Sterling declined on Friday following a -0.1% reading for January's GDP.

According to the latest data from the Office for National Statistics (ONS), UK economic output fell from 0.4% in December to -0.1% in January, falling short of market expectations for a 0.1% growth.

This disappointment led to a weakening of the currency, with the Pound-to-Euro exchange rate falling to 1.1927 and the Pound-to-Dollar rate dropping to 1.2922 shortly after the release.

In the three months leading up to January 2025, GDP grew by 0.2%, primarily fuelled by a stronger-than-expected performance in December, Pound Sterling Live reports.

Furthermore, the services sector, which is the largest in the economy, saw a modest growth of just 0.1% in January 2025, following a more substantial 0.4% increase in December 2024.

“Recession starts here. Services too has slowed dramatically, particularly in sectors like accommodation and food services which expect to be hit hard by higher living wage and employer national insurance contributions in April,” said Nicholas Hyett, Investment Manager at Wealth Club.

The weakness in January was mainly observed in production, which declined by 0.9%, reversing the 0.5% growth seen in December 2024.

Manufacturing output dropped by 1.1%, largely driven by decreases in basic metals (-3.3%) and pharmaceuticals (-3.1%).

Mining and quarrying also saw a decline of 3.3%, primarily due to a 3.7% drop in crude petroleum and natural gas extraction.

In addition, construction output also showed weakness, recording a 0.2% decline in January 2025, matching the drop seen in December.

The main area of weakness in January was production, which fell by 0.9%, reversing the 0.5% growth observed in December 2024. Manufacturing output decreased by 1.1%, primarily due to declines in basic metals (-3.3%) and pharmaceuticals (-3.1%).

Moreover, mining and quarrying saw a decline of 3.3%, primarily driven by a 3.7% drop in crude petroleum and natural gas extraction.

Construction output was also underwhelming, with a 0.2% decrease in January 2025, the same as in December.

The data is likely not weak enough to influence next week's Bank of England interest rate decision, meaning interest rates are expected to remain unchanged.

“The 0.1% contraction in GDP adds to the growing pressure on the Bank of England to reduce the base rate. However, it’s unlikely to be enough to trigger an immediate rate cut next week. Inflation remains the key concern, and the Bank will want to see sustained progress before acting. However, this latest economic weakness could shift expectations for a summer rate cut,” according to Jamie Elvin, Director at Strive Mortgages.