Key Takeaways:
- Drop in GDP marks worst UK economic performance since October 2023
- Latest UK GDP figures are among the first indications of the impact of tariffs on the economy
- Other factors impacting growth include stamp duty hike and employer national insurance contributions increase
UK gross domestic product (GDP) shrank by 0.3% in April, according to the latest data from the Office for National Statistics (ONS), as exporters completed deals ahead of expected tariff disruption and the end of the stamp duty holiday in early April dampened housing market activity.
The fall in GDP was slightly greater than expected and represents the UK’s worst economic performance since October 2023, when GDP shrank 0.4%. It comes as a setback for the chancellor, Rachel Reeves, who unveiled the 2025 spending review on June 11, and is under pressure to justify the government’s latest fiscal plans to voters and bond markets.
Global trade uncertainty resulted in a £2.7 billion fall in UK exports, the ONS said, with the decline most visible in exports to the US.
The economy did still manage to grow 0.7% in the three months to April, the ONS said, thanks to overall growth in the UK’s services sector. This suggests economic activity was effectively “brought forward,” in anticipation of tariff disruption and taxation changes, making April a quieter month overall.
“While today’s GDP figures and labor market data earlier in the week point to a sliver of incremental slack opening within the UK economy, we think the Bank of England will remain cautious in lowering interest rates throughout 2025,” says Morningstar international economist Grant Slade.
“Indeed, wage and services inflation remain a concern for the BOE, with both still running at levels that the central bank would find inconsistent with its long-term 2% inflation target.”
Why Did the UK Economy Shrink in April?
While the services sector was behind the overall growth in the three months to April, the front-loading”effect was also responsible for making the sector the largest contributor to the monthly fall in gross domestic product in April, the ONS said, with output falling 0.4%. Production output also decreased by 0.6%, though this was partially offset by an increase in construction output of 0.9% during April, according to the ONS data.
Export activity in some key markets also fell, however. Among them was car manufacturing. The manufacturing of motor vehicles, trailers and semitrailers fell by 9.5% in April, the ONS said, a drop driven by changes in car model design and “lower demand in key export markets.”
The April fall follows an output increase of 7.4% in March 2025, and a three-month increase of 3.7% to April 2025 itself.
“Despite the positivity in the months before April 2025, the [car] industry is estimated to be 12.7% below its peak, which was in February 2024,” the ONS added.
The data was complemented by anecdotal evidence from business surveys, which suggest the government’s stamp duty changes and National Insurance hike also played a big part in bringing economic activity forward, causing a dip in April.
“Comments received suggested the change in stamp duty land tax thresholds for home buyers in England and Northern Ireland affected activity in April. Most notably, conveyancing solicitors and real estate agencies saw a sizable decline in April as property purchases were completed ahead of the changes,” the ONS said.
However, the ONS also said several big industries had already reported the initial impact of US tariffs on their business prospects in April.
“Businesses from a range of industries provided comments citing the National Insurance Contribution changes on Apr. 6, and also, for those who export to United States, the possibility of tariff changes on exports,” it said.
Will The Bank of England Cut Interest Rates Next Week?
Poor economic data for April will heap yet more pressure on the Bank of England to cut rates in a bid to stimulate economic activity.
The Bank is itself monitoring the ongoing impact of government tax changes on business and industry—alongside the unfolding situation involving US tariffs on global economies. It will also take into account wage data released on June 11 which showed a softening in wage inflation.
Markets currently expect the Bank to hold the base rate at 4.25% at its June monetary policy meeting next Wednesday, following a cut in May, but commentators now say today’s data makes an August rate cut even more likely as ratesetters look to stimulate growth.
“Bank of England Governor Andrew Bailey had warned last week that GDP figures for the early part of the year had been unusually volatile, and this latest data supports that view,” says Richard Flax, chief investment officer at online investment platform Moneyfarm.
“The key question now is whether growth will begin to stabilize in the coming months, or if this pattern of inconsistency will persist through the summer.
“The broader monetary policy outlook remains unchanged. Markets still expect the Bank of England to begin cutting interest rates [again] in August, with a further reduction likely to follow in November. Unless we see a more prolonged or deeper slowdown, today’s data is unlikely to alter that trajectory,” he adds.
