UK economy shrinks by the most in nearly two years

[LONDON] Britain’s economic output contracted sharply in April, when shock waves from US President Donald Trump’s announcement of wide-ranging tariffs hit the global economy, official data showed on Thursday (Jun 12).

Gross domestic output shrank by a worse-than-expected 0.3 per cent in April from March – the biggest monthly drop since October 2023, and a much bigger drop than the 0.1 per cent fall forecast in a Reuters poll.

“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,” said Liz McKeown, director of economic statistics at the Office of National Statistics (ONS).

A fall in real estate and legal activity in April after the end of a temporary tax break on house purchases contributed 0.2 percentage points of the 0.3 percentage point fall in output in April, the ONS said. Carmakers also reported lower output and exports to both the US and the European Union.

Britain’s economy expanded by 0.7 per cent in the first quarter of 2025, outstripping growth in other countries in the G7 advanced economies and prompting the Bank of England (BOE) 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.

A closely watched business survey earlier this month suggested much of the economy returned to tepid growth.

Business surveys of British firms have generally been downbeat and shown firms slowed their hiring and investment plans, due to big increases in labour costs announced by finance minister Rachel Reeves last October.

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Data published this week showed a fall in consumer spending in May.

The ONS said gross domestic product in April was 0.9 per cent higher than a year earlier, growing less than the 1.1 per cent expected in the Reuters poll. REUTERS