UK GDP was weaker than expected in April, with the economy contracting by 0.3%, compared to market expectations for a 0.1% fall.
The fall was due to a combination of increased employer national insurance contributions, minimum wage increases, higher energy prices and the initial effects of President Trump’s tariffs.
Industry experts believe that while a drag on activity is likely to continue this quarter, this month's data is unlikely to influence rate setters at the Bank of England.
Lindsay James, investment strategist at Quilter, said: “Following a positive reading in March, ‘Awful April’ has struck again. The latest GDP figures out this morning reveal the UK economy experienced a bigger than expected 0.3% contraction in April. Much of this is owed to a combination of increased employer national insurance contributions, minimum wage increases, higher energy prices and the initial effects of President Trump’s tariffs – all of which will have weighed heavily on businesses.
“While the economy still grew by 0.7% in the three months to April compared with the previous quarter, the monthly figure may be indicative of more difficulty to come. The services sector spurred on most of this growth during the period, but in April it was the largest contributor to the fall in GDP with a fall of 0.4%, caused in part by the pulling forward of house purchases into March to avoid the stamp duty hike. Production output also continued to suffer, falling by a further 0.6% in April after a 0.7% drop in March.
“The data will come as a blow to Rachel Reeves – albeit a somewhat expected one – having just yesterday delivered her spending review which promised considerable spending. While the Chancellor laid out her plans to spend yesterday, it was unclear where any cuts would be coming from.
“Investors have already been highly cynical about the government’s spending plans and its fiscal rules, and today’s figures will likely spur further uncertainty around affordability. With the economy now weakening, we can expect to see concerns around further tax rises increase as we near the autumn budget – which is likely to weigh on growth even more.”
Felix Feather, economist at Aberdeen, commented: "This weakness follows surprisingly sharp expansions earlier in the year, and so in part likely represents some payback for the past strength.
"In addition, pessimism and uncertainty arising from US tariff policy probably weighed on the economy. The increase to employer national insurance contributions prompted the labour market to cool over the same period, compounding the headwinds.
"Despite the headwinds facing the economy, the Bank of England is likely to keep policy on hold next week in line with its “gradual and careful” approach to easing.”
Jeremy Batstone-Carr, European Strategist at Raymond James, added: "Following a strong first quarter for UK economic activity, today’s data confirms that growth is softening once more. As anticipated manufacturing and export activity, which was previously boosted by firms completing orders ahead of the implementation of US tariffs, has dropped sharply, effectively reversing gains made in March.
"The April data encapsulates the period immediately following the US trade ‘Liberation Day’ on April 2nd, and today’s data are the result of many firms putting production on hold across the month owing to the deeply uncertain outlook.
"From a policy perspective, given that activity data can be volatile month-to-month, today’s weak outturn whilst clearly forming part of next week’s rate-setting discussion at the Bank of England is unlikely, in isolation, to be sufficient to warrant a back-to-back rate cut."
George Lagarias, chief economist at Forvis Mazars, concluded: “The UK economy shrank more than expected in April, mostly due to significant underperformance in services. However, we wouldn’t get too worried about this negative print. The three-month data showed healthy growth. Additionally the Chancellor’s spending review suggests a generous pro-growth government agenda going forward. The Bank of England should be less worried about growth at this point, and more about inflation, especially if the Pound weakens.
