08:24 AM EDT, 03/14/2025 (MT Newswires) -- The United Kingdom's gross domestic product contracted 0.1% month over month in January after 0.4% growth in December, a downside surprise compared with consensus expectations of a 0.1% month over month expansion, said UBS on Friday.

The bank calculates that January's GDP -- assuming it remains unchanged for the rest of the quarter -- would be consistent with a marginal pick-up in GDP growth to 0.2% quarter over quarter in Q1 2025, following 0.1% quarter over quarter in Q4 2024.

However, this would be below the official UBS forecast of 0.4% quarter over quarter, signalling downside risk to the bank's 2025 GDP forecast of 1.1%.

Notwithstanding the signs of slowdown, unsurprisingly coming from the industrial sector, UBS continues to expect private consumption growth, supported by robust real income growth, to offset headwinds from tight -- but gradually easing -- monetary policy, external sector weakness and the gradual tightening of fiscal policy.

The bank forecasts that after averaging 0.9% in 2024, GDP growth should pick up to 1.1% this year and 1.3% in 2026, although with risks firmly skewed to the downside.

UBS predicts the Bank of England to stay on hold next Thursday, leaving Bank Rate at 4.5%. Despite the more dovish split of the vote at the last meeting, with two Monetary Policy Committee members voting for a larger 50bps rate cut, the BoE significantly upgraded its inflation projections and emphasised greater weight on a scenario in which a period of economic slack was necessary to bring inflation sustainably back to target.

The data since the last meeting has been on balance on the strong side, reinforcing the MPC's "gradual and careful" approach to easing, added the bank. Recent comments from MPC speakers overall repeated the message from the last meeting.

That said, there was a notable shift in the stance of the previously more dovish Deputy Governor Dave Ramsden, who said that he no longer sees risks to the inflation outlook as being skewed to the downside but rather as being two-sided.

Against this backdrop, UBS sees the majority of MPC members to be in favor of keeping rates on hold, with likely three members (Catherine Mann and Swati Dhingra, who voted for a 50bps cut last time, and Alan Taylor) voting for another rate cut.

In light of high uncertainty, the bank estimates the MPC to reiterate its "gradual and careful" approach to easing.