Monthly GDP Decline
The U.K. economy shrank by 0.3% in April, marking a sharp slowdown following March’s 0.2% growth. This decline exceeded economists’ expectations of a 0.1% drop, with key factors such as global trade tariffs and domestic tax increases contributing to the downturn. The figures, released by the Office for National Statistics, reveal the significant impact of U.S. President Donald Trump’s trade policies and domestic fiscal changes on economic activity.
Impact of Trade Tariffs
April’s economic contraction came amid rising uncertainty caused by U.S. trade tariffs, with a marked decline in U.K. exports, particularly to the U.S. The monthly GDP data showed a 63.5% decrease in residential property transactions, driven by the end of a tax break on property purchases. Liz McKeown from the ONS pointed to a record fall in goods exports to the U.S., attributed to the imposition of reciprocal tariffs by President Trump, despite the U.K.’s balanced trade relationship with the U.S.
Domestic Tax Increases
In addition to the tariffs, domestic tax rises also contributed to the economic slowdown. National insurance contributions and a higher minimum age for tax allowances took effect in April. A shift in the Stamp Duty Land Tax led to a significant drop in property transactions as buyers rushed to complete deals before the tax change. The overall economic climate reflected the combined pressure of these domestic tax changes and the international trade uncertainties.
Chancellor’s Response
U.K. Chancellor Rachel Reeves expressed disappointment over the data, acknowledging the challenging month of April. Despite the drop, she maintained that GDP figures fluctuate, noting that April’s figures were heavily influenced by uncertainty surrounding tariffs. She emphasized the government’s commitment to economic renewal, citing her recent spending plans as a path to boost the economy despite the negative data.
Forecast for 2025
Looking ahead, economists expect weaker growth for the remainder of the year, with the Bank of England predicting a modest 1% growth for 2025. Experts cited a weaker jobs market and growing economic uncertainty as key factors for muted growth. ING economist James Smith noted that frontloading activity, especially in manufacturing, had contributed to the strong first quarter but warned of more subdued growth going forward.
