Published by Global Banking & Finance Review®
Posted on June 12, 2025
4 min readLast updated: January 23, 2026
Add as preferred source on GoogleThe UK economy contracted by 0.3% in April 2025, the largest since 2023, due to US tariffs and a real estate slump.
By Suban Abdulla and David Milliken
LONDON (Reuters) -Britain's economy slowed sharply in April, reflecting shockwaves from U.S. President Donald Trump's announcement of wide-ranging tariffs and a one-off hit from the end of a tax break on property sales, official data showed on Thursday.
Gross domestic output shrank by a larger-than-expected 0.3% in April from March - the biggest monthly drop since October 2023 and more than the 0.1% fall forecast in a Reuters poll, following 0.2% growth in March.
Finance minister Rachel Reeves said the GDP numbers were "clearly disappointing".
Thursday's data comes a day after she set out a multi-year spending review which divided up more than 2 trillion pounds of public spending between government departments.
Britain's economy has grown slowly since the COVID-19 pandemic, and the fall in monthly GDP was led by a 0.4% contraction in output from the dominant services sector.
A big factor in this was a slump in real estate and legal activity in April after the end of a temporary tax break on house purchases, which contributed 0.2 percentage points of the overall 0.3 percentage point fall in output in April. Car makers also reported lower output and exports to both the United States and the European Union.
Sterling fell by close to half a cent against the dollar on the back of the figures, and gilt yields hit a one-month low.
TARIFFS IMPACT
British goods exports to the U.S. fell by 2.0 billion pounds ($2.7 billion) in April, the largest drop since monthly records began in 1997.
So far, Britain is the only major economy to have agreed a trade deal with the U.S., which is intended to exempt it from Trump's increased tariffs on aluminium and steel imports. A 10% goods levy remains in place.
The U.S. and China this week agreed on a plan, subject to approval from Trump and his Chinese counterpart Xi Jinping, to ease trade tensions after two days of talks in London.
Monthly GDP data tends to be volatile and some economists have noted a pattern since 2022 of British GDP being stronger in the first quarter of each year and weaker in the second half, raising questions about seasonal adjustment since the pandemic.
"Looking through the noise and data quality issues, we expect the underlying pace of growth to remain underwhelming over the next couple of years," Matt Swannell, chief economic advisor to the EY ITEM Club, said.
"The drag from U.S. trade policy has added to a range of domestic headwinds, including the significant tightening of fiscal policy and the lagged pass-through of past interest rate rises."
Britain's economy had expanded by 0.7% in the first quarter of 2025, outstripping growth in other countries in the Group of Seven advanced economies and prompting the Bank of England to revise up its full-year growth forecast to 1% last month.
However, the BoE revised down its growth forecast for 2026 to 1.25% and said it expected the tariffs to knock 0.3% off British output in three years' time.
BoE policymakers are expected to keep interest rates unchanged next week as they are faced with competing forces of stubborn inflation and a relatively sluggish economy, but most economists polled by Reuters expect two more rate cuts this year.
"Though the door is probably closed on an interest rate cut next week, these downbeat figures increase the likelihood of a policy loosening in August, despite lingering concerns over high inflation," Suren Thiru, economics director at ICAEW, an accountancy body, said.
Recent business surveys have shown firms slowing their hiring and investment plans due to big increases in labour costs announced by Reeves last October.
Of Britain's main economic sectors, construction showed the only growth in month-on-month terms in April, increasing by 0.9%, the ONS data showed. Industrial output fell 0.6%, driven by a 0.9% fall in manufacturing.
Separately, the ONS released trade data showing that Britain's goods trade deficit widened to 23.2 billion pounds in April from 19.9 billion pounds in March, much bigger than the 20.4 billion expected in a Reuters poll.
($1 = 0.7376 pounds)
(Reporting by Suban Abdulla and David Milliken; Editing by Muvija M and Toby Chopra)
The UK's GDP shrank by 0.3% in April from March, marking the biggest monthly drop since October 2023.
British goods exports to the U.S. fell by 2.0 billion pounds in April, the largest drop since records began in 1997.
The decline in GDP was primarily led by a 0.4% contraction in the services sector, particularly due to a slump in real estate and legal activity.
The Bank of England revised down its growth forecast for 2026 to 1.25% and expects tariffs to knock 0.3% off British output in three years.
Sterling fell by close to half a cent against the dollar following the disappointing GDP figures.
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