British economy shrinks in April

Based on recent data from Chancellor Rachel Reeves's office shows a worrying trend in the British economy throughout the month of April and beyond.

A neighborhood in London, United Kingdom.

The British economy shrank by 0.3% in April, its worst monthly performance since October of that previous year. This was a significantly sharper decline than expected, as economists surveyed by Reuters had forecast a mere 0.1% drop. The contraction follows modest growth of 0.2% in March, highlighting a sudden shift in momentum that underscores growing concerns about the British economic resilience amid trade wars and other global economic pressures.

A major factor behind the decrease in GDP nominal was the growing impact of U.S. President Donald Trump’s renewed trade war with the United Kingdom. Sweeping new tariffs on imports to the US took effect in April, and British exports to America dropped by a record 2 billion pounds that month. Analysts believe much of the trade activity had been pulled forward earlier in the year, as companies scrambled to beat the tariff deadline. With that surge behind them, April’s figures reflect a significant pullback in export-driven growth.

At home, the UK’s services sector—which accounts for the majority of economic output—fell by 0.4%. The end of a temporary tax break for homebuyers hit estate agents and law firms especially hard, dragging down overall performance. Meanwhile, British businesses faced higher national insurance contributions, and consumers were burdened by a fresh round of utility bill hikes, both of which likely dampened spending and investment. Manufacturing also struggled as output declined by 0.9%, led by a steep 5.2% drop in automobile production. These combined pressures contributed to April’s overall decline in GDP. However, not every sector was in the red—construction activity rose by 0.9%, helped by unusually sunny spring weather that accelerated building projects.

The disappointing economic data landed just one day after Chancellor Rachel Reeves introduced her government’s spending review. While the plan included an annual boost for the NHS, it also promised real-terms cuts for many departments. With GDP growth faltering, economists now warn that Reeves could face tough choices in the autumn Budget—including the possibility of tax hikes to meet fiscal targets. When pressed on this possibility, Reeves declined to rule it out. Speaking to the BBC, she acknowledged the uncertainty in today’s global economy, saying, “No chancellor can write four budgets in advance.” Her cautious tone reflects the challenges of planning fiscal policy during a time of geopolitical tension and domestic economic strain.

British politician Rachel Reeves.

Markets reacted with mixed signals. The pound initially dipped after the GDP announcement but recovered to close up 0.3% against a weakening dollar. However, the Pound slipped against the Euro, and the two-year gilt yield fell by 0.04% to 3.87%, as investors bet on additional rate cuts from the Bank of England later this year.

The Bank has already cut interest rates four times since last summer, but its monetary policy committee has shown signs of division. Traders now expect at least two more quarter-point cuts before the end of 2025, with the next likely coming in September.