As readers will know, the British economy is in the grip of profound and vicious crises. A pandemic-induced contraction in gross domestic product (GDP) and fallout from Donald Trump’s trade war are weighing heavily on trade relations. In April 2023, the UK economy shrank by an estimated 0.3%, the biggest month-on-month drop since October 2022. This decrease comes on the heels of a slight growth of 0.2% in March, reflecting the uncertainty gripping the UK economy.
Rachel Reeves, Britain’s shadow finance minister, called April a “difficult month” for the economy. The surprising contraction has fueled fears of a slowdown in growth ahead. Given these persistent headwinds, it’s no surprise that medium term expectations for UK trade are gloomy. According to the Office for National Statistics, UK goods exports to the United States fell by £3.1 billion—22.1 percent—over the same period. In April, exports decreased by a historic £2 billion ($2.7 billion) from March. This marks the biggest monthly decline in exports to the US since records started back in 1997.
The decline in export value is likely linked to the implementation of new tariffs announced by Donald Trump on April 2. These tariffs feature a baseline 10% tariff on goods exported to the US, with additional tariffs for specific countries. Even though implementation has been postponed until the beginning of July, businesses and consumers have begun experiencing the effects of this uncertainty.
Yael Selfin, chief economist at KPMG UK, said that these tariffs represented a worrying harbinger of worse challenges to come.
“This is expected to act as a headwind for UK trade in the medium term.” – Yael Selfin
This prolonged uncertainty on tariffs has decimated business confidence and production in many sectors from manufacturing to farming. Reeves underscored the consequences of these economic realities, saying,
“There was a huge uncertainty about tariffs… If you dig into those GDP numbers today, (we see) exports weakening and also production weakening because of that uncertainty in the world around tariffs.” – Rachel Reeves
UK businesses are currently navigating choppy waters. The agreement between the US and UK gives both countries at least a modicum of policy certainty. The longer-term impacts of tariff changes have yet to stop rippling across the economy.