‘Awful April’ struck again with UK economic growth suffering its worst monthly contraction since October 2023.
Data from the Office for National Statistics showed monthly GDP fell by 0.3% in April, following growth of 0.2% in March.
It was below the 0.1% contraction market experts had been predicting.
The slowdown was widespread, with the dominant services sector falling by 0.4% in April and production output declining by 0.6%.
Lindsay James, investment strategist at Quilter, said the bigger-than-expected drop was driven by a combination of increased employer national insurance contributions, minimum wage increases, higher energy prices and the initial effects of Trump’s tariffs.
James said: “Following a positive reading in March, ‘Awful April’ has struck again. The data will come as a blow to Rachel Reeves, albeit a somewhat expected one, having just 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.”
Abhi Chatterjee, chief investment strategist at Dynamic Planner, said: “The UK economy delivered a stark warning to the Chancellor in April. Particularly concerning was a sharp drop in goods exports to the US, suggesting that the economic pain is likely to intensify as the full impact of recent sweeping US tariffs begins to bite.
“This grim economic data comes directly after the Government’s ambitious spending review, which promises “national renewal.” Achieving genuine growth remains a critical imperative for the UK, and these figures underscore that simply cutting spending won’t be enough to put the nation back on a path to prosperity. The road to renewal appears far more challenging than anticipated.”
Rob Morgan, chief investment analyst at Charles Stanley, said the figures suggest tax rises may be on the cards in the coming months.
Morgan said: “The longer-term investment plans set out in the spending review stand to kick start growth and ameliorate some of the deep-set problems. But in the meantime, a stagnant economic picture could push the envelope of Chancellor Reeve’s fiscal rule of funding day-to-day spending from taxation.
“There’s little scope for extra borrowing to plug any gap. The spectre of the ill-fated Liz Truss premiership still haunts the current Government’s thinking and underlines the risk of any loss of credibility on public finances. This leaves increasing levels of taxation as the only remaining option should growth disappoint unless the Chancellor is prepared to make cutbacks.”
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