The export of goods from the UK to the European Union fell by nearly 41% as the Brexit transition period ended.
Figures from the Office for National Statistics (ONS) show the fall in January amounts to £5.6 billion.
The drop follows growth of 1.2% in December when the UK briefly saw an easing of restrictions.
Overall, the economy is 9% smaller than it was before the start of the pandemic but Friday's GDP figure is better than the one of nearer 5% expected by economists.
Alpesh Paleja, lead economist at the Confederation of British Industry (CBI), said: “Activity fell in January, as widely expected, with much of the UK entering some form of lockdown at the start of the year.
“However, the decline was notably smaller than the first lockdown in spring 2020, demonstrating the growing ability of businesses and households to adapt to greater restrictions on mobility.”
The services sector was the worst hit as it shrunk by 3.5% in January, when hospitality and leisure firms were forced to remain shut. The sector is 10.2% smaller than it was in February 2020, before the first lockdown.
The production sector also fell by 1.5%, after manufacturing contracted for the first time since last April – down 2.3%.
However, construction grew 0.9% as new work came in.
Deputy national statistician for economic statistics Jonathan Athow said: “The economy took a notable hit in January, albeit smaller than some expected, with retail, restaurants, schools and hairdressers all affected by the latest lockdown.
“Manufacturing also saw its first decline since April, with car manufacturing falling significantly.
“However, increases in health services from both vaccine rollout and increased testing partially offset the declines in other industries.
“Both imports and exports to the EU fell markedly in January, with much of this likely the result of temporary factors. Returns from our more timely surveys and other indicators suggest trading began to recover towards the end of the month.”The UK's GDP is expected to continue to drop before bouncing back up in the second quarter of the year.
Forecasts by the Office for Budget Responsibility (OBR) suggest GDP could drop 3.8% in the first quarter and then rise 3.9% in the second quarter - if the Government’s vaccination rollout and roadmap reopening goes to plan.
Chancellor Rishi Sunak announced last week at the Budget that various support packages will be extended. The furlough scheme will continue until September, the business rates holiday will continue until April and there will be £5 billion in grants for struggling businesses.
Responding to the drop in GDP, Labour’s Shadow Chancellor said the figures "confirm that under the Conservatives we’ve had the worst economic crisis of any major economy."
Anneliese Dodds continued: "Rather than securing the recovery, Rishi Sunak's budget last week risked weakening it through a combination of pay cuts and tax rises, and a looming cut to social security just as unemployment is set to spike.
"The Chancellor’s mask has slipped. He’s making irresponsible choices now and has no long-term plan for the future. The people of Britain deserve better."
Rachel Reeves, Shadow Chancellor of the Duchy of Lancaster, added: "These figures make it clear just how many British businesses have been struggling with the new reams of costly red tape and bureaucracy this Government has wrapped them in.
"Businesses have been appealing to the government to start listening to the problems they've been facing, but they've been left out in the cold.
"The Government must up their ambition here, and take practical action, hand in hand with businesses, to build on the limited deal they negotiated with the EU."