UK’s GDP records the worst drop since 2023

The UK economy took a sharp hit in April, shrinking by 0.3%, which is the worst monthly performance since October 2023, according to figures from the Office for National Statistics.

The drop was way deeper than the 0.1% fall economists expected, and it followed a modest 0.2% bump in March. The damage came from multiple sides — Donald Trump’s trade war, tax hikes, and a weakening services sector — all combining to drag growth down at exactly the wrong time.

The biggest blow came from services, which make up the bulk of the UK’s GDP. In April, that sector shrank by 0.4%. A major chunk of that was tied to the end of a government tax break for home purchases.

That move hit estate agents and law firms hard, slashing business activity across real estate. At the same time, goods exports to the United States crashed, recording the largest monthly drop ever tracked. The decline followed a rush to export goods before new tariffs imposed by Trump officially kicked in that month.

Services slide as tax breaks expire and exports tank

Since April, companies across the UK have been forced to pay higher national insurance contributions, adding cost pressure at a time when demand is already soft. Households were also hit. Utility bills climbed again, eating into consumer spending and dragging down broader economic activity.

And none of this hit in a vacuum. These figures landed just one day after Chancellor Rachel Reeves laid out her government’s spending review — one that promised to take Britain through what she called a “national renewal.”

That same review handed more funding to the National Health Service but cut real-term spending across several major government departments. Responding to the April GDP figures, Rachel didn’t dodge the numbers. “While these numbers are clearly disappointing, I’m determined to deliver on that mission. Our number one mission is delivering growth to put more money in people’s pockets,” she said on Thursday.

But the mission isn’t going to be easy. The April decline followed 0.7% growth in the first quarter of 2025, but the Bank of England already expects growth to drop to 0.1% in the second quarter. That’s not progress — that’s basically flatlining.

Investors bet on more rate cuts as job market weakens

Interest rates have already been slashed four times since last summer, but even the BoE’s Monetary Policy Committee couldn’t agree on May’s quarter-point cut to 4.25%. It split three ways.

And now, pressure is building again. After April’s GDP numbers and labor market figures, traders are betting the Bank will deliver two more cuts before the end of 2025. The next one could land in September.

That shift in sentiment followed data showing the unemployment rate had risen to a four-year high in the three months leading up to April. Growth is stalling, jobs are disappearing, and the market is adjusting.

Following the latest numbers, the pound dipped slightly but still ended the day 0.2% higher at $1.357. The two-year gilt yield, which reacts quickly to rate cut expectations, fell 0.03 percentage points to 3.89%.

Meanwhile, Trump is expected to sign off on a new section of the US-UK trade deal. It’s a key part of the “cars for agriculture” agreement. The arrangement will allow British car exporters to pay lower tariffs in exchange for the UK opening up its market to US beef and ethanol.

The two sides revealed the deal more than a month ago when Trump and Prime Minister Sir Keir Starmer stood together at a televised press conference inside the Oval Office on May 8, outlining a five-page Economic Prosperity Deal.

But not everything has been finalized. The most sensitive part — the zero-tariff access for UK steelmakers — is still under negotiation. And it’s already drawing heat.

The UK bioethanol industry is warning that giving US ethanol producers access to a large, duty-free quota could put local players out of business. At the same time, Starmer’s government is being criticized for how long it’s taking to lock the deal in.

Still, officials say it’s almost done. “The proclamation is sitting on the president’s desk,” one official said. Another added, “Compared to other negotiations and agreements this is being done at lightning speed.” Whether that’s fast enough to help the UK economy this year remains to be seen.

Your crypto news deserves attention - KEY Difference Wire puts you on 250+ top sites