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Economic growth

UK Economy Suffers Worst Monthly Contraction Since 2023 Amid Trade War and Tax Increases

Strategic Insights

— 2 min read

The UK economy recorded its worst monthly contraction in April since 2023, with a 0.3 per cent decline in GDP, underscoring the challenges faced by Chancellor Rachel Reeves in boosting growth to finance the government's spending plans. The contraction was sharper than the 0.1 per cent forecast by economists and followed a 0.2 per cent growth in March. The dominant services sector, which accounts for a significant portion of the economy, fell 0.4 per cent, hurt by the end of a tax break on home purchases and higher utility bills.

Key Takeaways:

  • The UK economy suffered its worst monthly contraction in April since 2023, with a 0.3 per cent decline in GDP.
  • The contraction was sharper than the 0.1 per cent forecast by economists and followed a 0.2 per cent growth in March.
  • The dominant services sector, which accounts for a significant portion of the economy, fell 0.4 per cent.
  • The value of goods exported to the US tumbled by the most on record, suggesting that activity was brought forward in previous months ahead of the tariffs that took effect in April.
  • Companies faced an increase in national insurance contributions since April, while households are grappling with higher utility bills.
  • Economists said the lacklustre growth raised the prospect that Reeves could be forced to raise taxes in the autumn Budget.
  • Chancellor Rachel Reeves refused to rule out raising taxes in the autumn Budget, citing the uncertainty in the world economy.
  • Rob Morgan, chief investment analyst at Charles Stanley, said first-quarter growth had been helped by a "dash for exports" ahead of the tariffs, but now growth will be well below where the government wants it to be.
  • The value of exports to the US fell by £2 billion in April, according to the ONS.
  • Manufacturing output dropped 0.9 per cent, with car production declining 5.2 per cent.
  • The construction sector recorded growth of 0.9 per cent, helped by unusually sunny weather.

Statistics:

  • The UK economy contracted by 0.3 per cent in April.
  • The dominant services sector fell 0.4 per cent.
  • The value of goods exported to the US tumbled by £2 billion in April.
  • Manufacturing output dropped 0.9 per cent.
  • Car production declined by 5.2 per cent.
  • The construction sector recorded growth of 0.9 per cent.

Sources:

  • Reuters, "UK economy suffers worst monthly contraction since 2023"
  • The Office for National Statistics (ONS)
  • Charles Stanley
  • BBC News
  • Additional reporting by Ian Smith

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