UK Economy Shrinks Sharply in April, Hit by US Trade War and Tax Hikes

UK economy shrinks April 2025 by 0.3%, its sharpest monthly decrease since October 2023. Economists were caught off guard, forecasting just a 0.1% decline. The recent previous growth in March and February was reversed in April.

Increases in taxes, poor manufacturing, and a precipitous fall in exports to the US all pulled the economy downward. The most recent figures from the Office for National Statistics (ONS) are bleak, with businesses also reducing investment and shedding jobs.

Trump’s Tariffs Worsen Trade Outlook

At the center of the slump is the effect of US President Donald Trump‘s new tariff policy. His so-called “liberation day” trade war caused the worst decline in UK exports to the US since records started in 1997. British goods exports to the US fell by £2.0 billion ($2.7 billion) in April alone. This hit nearly all major export industries.

Liz McKeown, ONS economic statistics director, corroborated the effect. “April recorded the largest monthly decline on record in UK exports to the United States with falls across all but one of the main types of goods,” she said. The sharp fall came after Trump’s new tariffs, particularly the 25% auto-import duty, which pummeled the UK auto sector.

Manufacturing, Investment, and Jobs Slide

Production during manufacturing declined by 0.6% in April. The automotive production was hit hardest, primarily because of the new US tax. Businesses also became prudent. They cut jobs and halted investments, slowing momentum in the economy further.

This is despite previous resilience. During the first quarter of 2025, the UK economy had expanded 0.7%, better than other G7 economies. That robust beginning had prompted the Bank of England to upgrade its full-year growth estimate to 1% last month.

Outlook Now Clouded

But faith is now shaken. The Bank of England has revised its 2026 growth forecast downward to 1.25%. It forecasts tariffs will take 0.3% from UK production over three years. Policymakers sit down next week to set interest rates. However, they have a delicate balance between climbing inflation and a slowing economy.

PM Keir Starmer has placed the economy first in his list of priorities. His administration aims to drive growth and enhance living standards. Despite the dip in April, the ONS reports that the UK economy still expanded overall during the last three months.