In April the UK economy recorded its worst monthly contraction on record. Gross Domestic Product (GDP) decreased by 0.3%, completely breaking economists’ predictions of a 0.1% drop. Out today, Rachel Reeves, the shadow chancellor, expressed her frustration first in an interview on Sky News. As she noted, April presented some of the biggest headwinds to economic expansion. His prediction comes after a white-hot first quarter. All that created an economy that prospered with a rate of GDP growth of 0.7%.
In April as well, outside factors was the biggest driver of the drop. Especially since global trade tariffs were announced by U.S. President Donald Trump and domestic tax increases went into effect at the beginning of the month. British businesses were under greater financial strain with the increased national insurance contributions and a rise in the minimum wage. The end of a temporary nationwide tax break on property purchases at the end of March took its toll. Consequently, residential property transactions in the UK dropped by a shocking 63.5%.
Reeves called April’s performance “clearly disappointing,” and she emphasized just how volatile GDP data has been in recent months. She said that the uncertainty created by tariffs had a direct effect on the decline of exports and the overall production decline.
“April was a disappointing month for the UK economy, judging by the 0.3% drop in GDP across the month. In truth, this isn’t hugely surprising. The figures have been enormously volatile recently.” – James Smith
According to the U.K.’s Office for National Statistics (ONS), industrial production and services output fell markedly over the entire month of April. Construction output proved to be the real tough cookie, somehow managing to grow over the same period.
Economists lamenting a long-term slowdown in growth rates. Some of their recent estimated contraction is due to more subdued economic activity expected for the rest of the year. That growth is set to slow to only 0.1-0.2% in the second quarter per projections. This represents a huge turnaround from the 0.7% growth we experienced in Q1.
“After a strong first quarter, a weaker jobs market and economic uncertainty point to more muted growth rates for the remainder of this year.” – An economist
These recent changes in trade policy didn’t just have an indirect effect on exports—they had a direct effect as well. Additionally, there was a record monthly decline in goods exports to the US in April. A major cause of this decline was the imposition of new tariffs on a broad swath of goods.
“After increasing for each of the four preceding months, April saw the largest monthly fall on record in goods exports to the United States with decreases seen across most types of goods, following the recent introduction of tariffs.” – Liz McKeown
Reeves admitted the increasing pressures in the economic environment. He underscored the importance of knowing how tariff-related unpredictability affects the ability to tune economic behavior and sort out consumer uncertainty.
“There was huge uncertainty about tariffs and one of the things, if you dig into those GDP numbers today, is exports weakening and also production weakening because of the uncertainty in the world around tariffs.” – Rachel Reeves
Not everything is dark though, as many analysts point to reasons for optimism. They think that there is a chance for rebound once these companies start adjusting to the new tax landscape and trade context. They caution that sustained growth will still be hard to come by. Paradigm-shifting changes to existing policies or the outside world make advancement possible.