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The UK economy suffered its worst monthly contraction in April since 2023 as US President Donald Trump’s trade war hit exports and tax increases held back the services sector, underlining chancellor Rachel Reeves’ challenge in delivering the growth needed to help finance the government’s spending plans.
The 0.3 per cent GDP decline was the steepest since October 2023 and weaker than the 0.1 per cent contraction forecast by economists polled by Reuters. It followed growth of 0.2 per cent in March.
Output in the dominant services sector fell 0.4 per cent, with the end of a tax break on home purchases hurting estate agents and law firms. The value of goods exported to the US tumbled by the most on record, suggesting activity was brought forward in previous months ahead of the sweeping tariffs that took effect in April.
UK companies have also faced an increase in national insurance contributions since April, while households are grappling with higher utility bills.
The GDP figures were released a day after Reeves set out the government’s spending review, which promised to put Britain on a path to “national renewal”. It delivered an annual boost for the NHS, but real-terms spending cuts for many Whitehall departments.
Economists said the lacklustre growth raised the prospect that Reeves could be forced to raise taxes in the autumn Budget.
Asked about the possibility on Thursday, Reeves refused to rule it out, telling the BBC that “no chancellor is able to write another four budgets in the first year of a government, you know how much uncertainty there is in the world at the moment”.
April’s contraction followed growth of 0.7 per cent in the first quarter, a pace that the Bank of England expects to slow to 0.1 per cent in the second quarter.
Rob Morgan, chief investment analyst at Charles Stanley, said first-quarter growth had been helped by “a dash for exports” ahead of the tariffs, which included a 10 per cent duty on most UK exports to the US.
But he added: “With that spike in activity in the rear-view mirror, it’s back to a more mundane reality. UK growth [will be] well below where the government wants it to be.”
The value of UK exports to the US fell by £2bn in April, according to the ONS. Manufacturing output dropped 0.9 per cent, with car production declining 5.2 per cent, offsetting an increase of a similar size in March.
In a rare bright spot, the construction sector recorded growth of 0.9 per cent, helped by unusually sunny weather.
Reeves said that April had been a “challenging month” for the economy, acknowledging that Trump’s tariffs “did affect the [UK’s] ability to export”.
But the chancellor pointed to the trade agreement struck with the US last month, which cut punitive tariffs on car and steel exports. The deal failed to reverse the 10 per cent tax that applies to most goods though.
The pound dipped against the dollar following the GDP data, but remained up 0.3 per cent by late afternoon in London against a broadly weaker US currency. It fell against the euro, with the single currency climbing as much as 0.8 per cent to a high of £0.8546.
The yield on the two-year gilt, which is sensitive to interest rate expectations, fell 0.04 percentage points to 3.87 per cent.
The BoE’s Monetary Policy Committee has cut interest rates four times since the summer last year, but was split three ways over last month’s quarter-point reduction to 4.25 per cent.
This week, traders increased their bets that the central bank would deliver two more quarter-point cuts this year, with the next move coming in September, after official data showed the unemployment rate rose to a four-year high in the three months to April.
James Smith, an economist at ING, said that the volatility in the GDP data meant that the BoE “hasn’t been putting a huge amount of emphasis” on it.
But he added that the bottom line was “after a strong first quarter, a weaker jobs market and economic uncertainty point to more muted growth rates for the remainder of this year”.
Additional reporting by Ian Smith in London
