The U.K. economy experienced a notable contraction in April, as businesses and households faced mounting pressure from increased taxes and rising energy costs.
According to data released Thursday by the Office for National Statistics (ONS), gross domestic product (GDP) fell by 0.3% on a monthly basis, a sharper decline than the 0.1% drop forecast by economists. This downturn partially offsets the 0.7% GDP growth recorded in the first quarter of the year.
Year-over-year, the U.K. economy expanded by 0.9% in April, down from 1.1% annual growth in the previous month.
April brought a series of cost challenges for businesses and consumers alike, including higher water and energy bills and the implementation of increased employer national insurance contributions. These domestic pressures were compounded by global uncertainty linked to U.S. President Donald Trump’s evolving trade tariff strategy.
On Wednesday, Chancellor Rachel Reeves introduced a new spending review, pledging expanded public investment. The plan includes real-term increases of 2.3% per year in departmental budgets and over £2 trillion in funding for infrastructure, defense, and social housing.
The Bank of England (BoE), which reduced its base interest rate by 25 basis points to 4.25% in May, is set to meet next week amid a challenging backdrop. Economic growth has stalled, unemployment is at its highest since July 2021, and inflation remains elevated at 3.5%—above the BoE’s target and expected to continue rising.
BoE Governor Andrew Bailey noted last week that the future path of rate cuts is highly uncertain, citing growing unpredictability in the global economy due in part to Trump’s aggressive trade policies.
Despite these concerns, the central bank is expected to hold the base rate steady at 4.25% next week. Markets are currently pricing in two additional rate cuts this year—likely in August and later in the fourth quarter—which would bring the base rate down to 3.75% by year-end.
