The UK economy is at a critical turning point. New data reveals a continued GDP contraction, including a growing trade deficit. In May 2025, the entire country’s GDP contracted by 0.1%, on the heels of a 0.3% contraction in April. These turns of events do pose a serious question mark over the prospects for economic growth during the latter half of this year.
The non-EU trade in goods deficit rose by £6.1 billion. In fact, it currently sets out £61.0 billion over the three months before May 2025. The deficit has swelled on the back of three trends. Significantly, imports from the U.S. fell by £0.9 billion in May. US agricultural exports to Mexico decreased drastically. This decrease was primarily attributed to decreases in other industrial imports, in particular, fuels and lubricant commodities and machinery and transport equipment.
Goods exports to the United States fell sharply again in May, rebounding by only £0.3 billion. Even with this rebound, total trade with the US has not yet caught up to prior highs. This history reveals a reality of what exporters are currently facing with persistent supply chain issues and inflationary pressures worsened by tariff impacts.
In contrast to goods trade, the surplus in services trade has shrunk. Taken to be down £0.6 billion to £47.8 billion. The UK’s economic landscape is getting more and more confusing. In May 2025, services output increased just 0.1%.
Notwithstanding these national disappointments, in many ways other sectors of our society are still wrestling with their own distinct challenges. Construction output experienced a 0.6% decline, with production output down even further at 0.9% for the same time period. These numbers indicate that companies across all sectors are having a hard time keeping up with shifting market conditions.
The decline in demand for UK goods poses a significant hurdle for exporters. They are already stressed by tariff and other economic pressures. Right now the UK-US trade market seems pretty impenetrable. That’s hard to believe, especially in light of the recent trade agreements intended to strengthen our trade partnership.
The outlook for the UK’s economy in the long-term is bleak. Falling GDP, increasing trade deficits, and recessions in important industries like semiconductor manufacturing combine to create this alarming picture. Our analysts have been watching these trends with great interest. Even so, they’re projecting some significant negative effects on growth and potentially medium-term stability through the end of 2025.