UK Economy Shrinks 0.3% Amidst Trump Trade War Impact on Exports

The UK economy experienced a 0.3% contraction in April, defying economists' predictions of a 0.1% decline and marking the most significant monthly drop since October 2023. This downturn, following growth in February (0.5%) and March (0.2%), was primarily attributed to business responses to uncertainty from Donald Trump's tariff war and increased taxes, leading to job cuts and stalled investment.

According to Liz McKeown, an ONS director of economic statistics, the services sector, which dropped by 0.4%, was impacted by changes to stamp duty rates in England and Northern Ireland, causing a sharp decline in house sales and affecting related businesses like estate agents and conveyancing lawyers. Furthermore, goods exports to the United States saw their largest monthly fall on record, with decreases across most goods categories, following Trump's "liberation day" tariffs.

Manufacturing also saw a 0.6% drop, largely due to reduced car production, likely in response to the US's 25% levy on auto imports. The only positive sector was construction, which grew by 0.9% due to an increase in housebuilding starts. McKeown suggested that the higher activity in February and March might have been businesses expediting sales to avoid impending US import tariffs. The data also highlighted concerns that increased employer national insurance contributions could hinder UK growth. Adding to these concerns, HMRC's latest jobs data revealed a fall of 109,000 workers on company payrolls in May, the largest monthly decrease since the initial Covid lockdown in May 2020.

Since Rachel Reeves's autumn budget, Britain has lost over 250,000 jobs. This decline in GDP delivers a setback for the chancellor, especially coming just a day after she unveiled a three-year spending review aimed at boosting economic growth. The figures are likely to frustrate ministers eager to demonstrate progress in strengthening the UK’s economic prospects.