UK economy contracts more than expected in April
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The news: The UK economy experienced its most severe contraction since 2023 in April, after tax increases and US tariffs dragged on the economy.
The numbers: Gross domestic product (GDP) fell 0.3% in April, after expanding during the two months prior, according to data from the Office for National Statistics (ONS). March had seen UK GDP grow 0.2%.
The decline was the steepest since October 2023, and came in below the 0.1% contraction predicted by Reuters.
The services sector saw output fall by 0.4% in April, following growth of 0.4% in March, and was the largest contributor to the April GDP drop.
The context: UK households are grappling with higher utility bills while companies are managing an increase in national insurance contributions and payroll taxes, both of which came into effect in April. Data published by the ONS earlier this week showed additional levies on companies saw UK unemployment reach a four-year high in April.
While April’s GDP contraction followed expansion of 0.7% in the three months to March, the Bank of England is forecasting the pace of growth to slow to 0.1% for the second quarter.
The GDP data will be a harsh wake up call for Prime Minister Keir Starmer who has repeatedly hailed the UK’s economy as an outperformer compared to other G7 nations.
On Wednesday, Chancellor of the Exchequer Rachel Reeves set out the government’s spending review which she promised would put the country on track for a “national renewal.” Reeves allocated an additional £29 billion ($60.5 billion) per year for the country’s NSH health service, as well as £39 billion for affordable housing and £22 billion for research and development, with an additional £2 billion earmarked for its AI action plan.
The source: Office for National Statistics
