By Joshua Kirby
The U.K. economy contracted more than expected in April as President Trump’s evolving trade policy brought a halt to a surprising surge in activity.
Gross domestic product was 0.3% lower than a month earlier, the country’s Office for National Statistics said Thursday, marking the deepest contraction in the British economy in 18 months. Economists had expected a shallower contraction of 0.1%, according to a poll compiled by The Wall Street Journal ahead of the release.
Production at the country’s factories, notably of cars, decreased in April, after having risen strongly at the start of the year as American importers rushed to stock up ahead of an anticipated tariff package at the start of the month. Exports to the U.S. dropped by the fastest rate on record following the introduction of those tariffs, the ONS said.
Prior to the April contraction, Europe’s second-largest economy had enjoyed a brisk start to 2025 as it grew by 0.7% in the first quarter, outpacing the eurozone and the U.S., where output contracted over the same period.
“The strength in the first quarter was unsustainable,” wrote Paul Dales, chief U.K. economist at Capital Economics.
President Trump at the start of April set out levies on the U.S.’s largest trading partners, including the U.K, adding to a 25% duty on imported autos. That contributed to a nearly 10% drop in production at Britain’s auto factories in April.
London and Washington later signed a deal that will allow British exports to avoid the higher range of Trump’s trade duties. U.K. goods will face a baseline tariff of 10%, lower than the 20% threatened on European Union exports, with exemptions for some key goods such as steel.
Still, the frostier global trade environment is taking its toll on the British economy. As well as the downturn in factory output, the cloudy horizon is leading firms to delay investment decisions and trim workforces.
“You’ve got a lot of caution on the business side, particularly in investment,” said Alpesh Paleja, deputy chief economist at the Confederation of British Industry.
“That’s the area most affected by uncertainty, and the increase in global trade barriers,” Paleja said.
Indeed, the whipsawing trade policy from Washington is the main source of global uncertainty affecting British firms, central bank governor Andrew Bailey told lawmakers recently.
“You hear it around the country when you go to businesses,” Bailey said. “Investment is an irreversible decision, so the appeal of waiting goes up.”
But the U.K. has its own, homegrown problems too. Underinvestment and stalling productivity have kept British growth weak for years, compounded by shocks such as the damaging exit from the European Union, the global pandemic and the Russia-Ukraine crisis. Price inflation remains well above the Bank of England’s 2% target, leaving policymakers at the BOE with less room to cut interest rates than their peers at the European Central Bank.
Businesses are also facing higher employer tax contributions and a rise in the minimum wage, both of which came into effect in April. The number of employees on the country’s payrolls dropped in the three months through April, figures this week showed, leading economists to warn that the labor market, which has proved robust in a turgid economy, could see a spike in joblessness over the coming months.
“British firms [are] in the midst of the perfect storm of challenges, and forced to hold off on hiring and increase layoffs,” wrote Matthew Ryan, a market strategist at financial-services firm Ebury.
A limping economy and a pessimistic private sector are bad news for the country’s center-left government, which is betting on growth to fund a step-up in government spending. Treasury chief Rachel Reeves on Wednesday unveiled billions of pounds in new spending on housing and health. Prime Minister Keir Starmer has also promised increased defense spending, including on new submarines to bolster the country’s nuclear deterrence, in part to meet Trump’s demands that NATO allies spend more of their budgets on defense.
Still, new spending allocations don’t do much to promote growth in the near term, suggesting the U.K. should expect further low growth as the year goes on, Paleja of the CBI said.
“Houses, for example, take time to build,” he said. “It takes time for that to trickle through to the economy.”
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
(END) Dow Jones Newswires
06-12-25 0322ET
