The UK economy suffered its sharpest monthly contraction in 18 months, as sharp tax hikes and US President Donald Trump’s tariffs took a toll on businesses and households, raising fresh concerns over the Labour government’s ability to fund its ambitious spending plans through economic growth.
According to data released by the Office for National Statistics (ONS), GDP fell 0.3% in April, significantly worse than the 0.1% decline economists had forecast. The downturn was driven by declines in both services and manufacturing, although construction saw a modest uptick.
The figures mark a setback for Prime Minister Keir Starmer, who recently touted the UK’s strong first quarter (1Q) growth as a turning point for the economy. April’s contraction, the first monthly decline in six months, suggests that optimism may have been premature.
Economists now forecast tepid 0.1% growth for 2Q, as rising payroll taxes, higher energy bills and global trade tensions dampen consumer spending and business activity. The ONS highlighted a £2 billion drop in goods exports to the US, likely linked to pre-emptive exports ahead of Trump’s tariffs taking effect.
Chancellor Rachel Reeves acknowledged the figures were “clearly disappointing” but emphasised the volatility of monthly data and pointed to upcoming trade deals and planning reforms as growth catalysts.
Still, market reaction was swift as traders increased bets on further interest rate cuts by the Bank of England, fully pricing in two more quarter-point reductions this year. The pound trimmed earlier gains.
With job losses mounting and forecasts suggesting only 0.3% average quarterly growth until 2026, economists warn that Labour may have to reconsider its fiscal strategy or risk further economic drag. Data earlier this week showed over 250,000 jobs lost since Reeves’ first budget introduced tax and wage hikes.
While some analysts argue that April’s contraction reflects temporary distortions, including front-loaded exports, the broader picture suggests the UK faces a tougher economic road ahead than the government had hoped.
