The UK economy shrank by 0.3% in April, marking its sharpest monthly decline since October 2023, as businesses faced mounting pressure from trade tensions and tax increases.
The contraction, reported by the Office for National Statistics (ONS), follows modest growth of 0.2% in March and 0.5% in February, and exceeded City forecasts which had predicted a smaller 0.1% drop.
A key contributor to the decline was the slump in the services sector, which fell by 0.4%. The slowdown was driven in part by reduced housing market activity after changes to stamp duty rates in England and Northern Ireland. Estate agents, conveyancing firms and related services saw a notable drop in demand.
Exports to the United States also saw a dramatic fall in April, following the introduction of new tariffs by former US President Donald Trump.
The ONS highlighted a record monthly fall in goods exports to the US, with most sectors affected. Manufacturing output decreased by 0.6%, largely due to a reduction in car production triggered by the US’s 25% tariff on vehicle imports.
Construction was the only sector to report growth, rising by 0.9% thanks to a boost in new housebuilding projects. However, analysts noted that some of the previous months’ gains may have stemmed from companies accelerating orders and sales ahead of the tariff implementation.
Concerns about the broader impact of tax increases were reinforced by the latest employment figures. HMRC data revealed that the number of workers on payrolls fell by 109,000 in May, the biggest monthly drop since the start of the pandemic in 2020. The fall in employment brings total job losses since Rachel Reeves’s autumn budget to over 250,000.
The GDP figures deal a setback to the chancellor’s ambitions, just one day after announcing a new three-year spending review aimed at stimulating growth. The economic contraction also raises doubts over the government’s ability to deliver on its promises to strengthen the UK’s recovery amidst ongoing global and domestic challenges.
