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Britain’s economy faced a significant slowdown in April, as official data released on Thursday showed a larger-than-expected 0.3% contraction in gross domestic output compared to March, marking the biggest monthly drop since October 2023. This decline followed a 0.2% growth in March and exceeded the 0.1% fall forecasted in a Reuters poll.
Impact of U.S. Tariffs and Tax Break End
Finance Minister Rachel Reeves acknowledged the disappointing GDP figures, noting that the fall was largely due to a combination of external and internal factors. A key driver of the downturn was the end of a temporary tax break on property sales, which caused a significant slump in real estate and legal activity in April. This one-off effect contributed 0.2 percentage points to the overall 0.3% drop in output.
The tariffs imposed by U.S. President Donald Trump on British goods exports also had a notable impact. British goods exports to the U.S. fell by £2.0 billion ($2.7 billion) in April, marking the largest monthly drop in exports to the U.S. since records began in 1997. While Britain remains the only major economy to have secured a trade deal with the U.S., which was intended to exempt it from Trump’s increased tariffs on aluminum and steel imports, a 10% goods levy still remains in place.
Sluggish Services Sector and Car Manufacturing Decline
The services sector, which constitutes the largest portion of the British economy, contracted by 0.4% in April, with a notable decline in real estate and legal services. Additionally, car manufacturers reported lower output and a decrease in exports to both the United States and the European Union.
Despite these challenges, the construction sector showed resilience, with a 0.9% increase in month-on-month output in April. However, industrial output as a whole fell by 0.6%, driven by a 0.9% drop in manufacturing.
Sterling Weakens, Gilt Yields Hit One-Month Low
In response to the disappointing data, the British pound fell by nearly half a cent against the U.S. dollar, while gilt yields reached a one-month low. This weak economic performance raised concerns about Britain’s longer-term growth prospects, particularly as tariffs are expected to shave 0.3% off British output over the next three years, according to the Bank of England’s (BoE) revised forecasts.
Tariffs Expected to Weigh on Future Growth
Despite strong growth in the first quarter of 2025, where Britain expanded by 0.7%, outpacing other G7 economies, the BoE has revised down its growth forecast for 2026 to 1.25%. The central bank also anticipates that the ongoing tariffs will continue to negatively affect British output, contributing to slower growth over the medium term.
Policymakers at the BoE are expected to maintain interest rates at their current levels in the upcoming meeting, balancing persistent inflation concerns with a sluggish economy. However, most economists polled by Reuters anticipate at least two rate cuts by the end of the year.
Widening Trade Deficit
Separate trade data released by the Office for National Statistics (ONS) showed that Britain’s goods trade deficit widened significantly in April, rising to £23.2 billion from £19.9 billion in March. This exceeded the £20.4 billion expected in the Reuters poll and reflects the ongoing challenges Britain faces in balancing its trade accounts amid tariff pressures.
Conclusion
Britain’s economy has shown signs of strain, with the combination of U.S. tariff impacts, the end of a property tax break, and softer growth in key sectors leading to a disappointing April GDP reading. With the government focusing on navigating trade tensions and managing inflation, the outlook remains cautious. The Bank of England’s decision to maintain interest rates, alongside expectations for future rate cuts, reflects the balancing act required to support economic growth in the face of these challenges.
