UK’s economy shrinks more than expected, Trump’s trade war hits it hard

The UK economy contracted by 0.3 per cent in April, more than what experts and economists expected, as taxes rose and exports to the US nosedived.

Businesses scaled back investment plans and slashed jobs, pushing the economy into reverse.

Earlier, economists predicted a 0.1 per cent contraction.

The latest figure from the Office for National Statistics reveals that it’s the worst monthly drop since October 2023, following positive growth rates of 0.2 per cent and 0.5 per cent in March and February, respectively.

Trump’s tariff war bites

Economists earlier predicted that US President Donald Trump’s “liberation day” tariffs were expected to hit UK exports to the world’s largest economy.

British goods exports to the US fell by 2.0 billion pounds ($2.7 billion) in April, the largest drop since monthly records began in 1997.

“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, an ONS director of economic statistics, said.

In the same period, manufacturing dropped by 0.6 per cent, mainly due to cuts in auto industry output. The UK’s auto sector suffered mainly because of the US 25 per cent levy on auto imports.

The UK economy grew by 0.7 per cent in the first quarter of 2025, outperforming G7 economies and prompting the Bank of England to revise up its full-year growth forecast to 1 per cent last month.

However, the BoE revised down its growth forecast for 2026 to 1.25 per cent and said it expected the tariffs to knock 0.3 per cent off British output in three years’ time.

BoE policymakers who are expected to hold interest rates next week are faced with competing forces of stubborn inflation and a relatively sluggish economy.

The government of PM Keir Starmer has made boosting the economy the biggest priority of his government in a bid to improve living standards in the country. Despite the economy contracting in April, the Office for National Statistics said it had grown overall in the last three months.