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Investing.com -- The United Kingdom (TADAWUL:4280)’s GDP contracted by 0.3% in April, exceeding analyst expectations for a 0.1% decline and signaling a sharp loss of momentum after strong first-quarter growth.
The data, released Thursday, prompted economists to warn that April’s figures may mark the start of a broader slowdown, reinforcing the view that Q1’s 0.7% expansion was unsustainable.
The drop supports Capital Economics’ view that the strong growth seen in the first quarter was unsustainable. The U.K. economy had expanded by 0.7% in Q1, but April’s figures suggest a significant slowdown.
Manufacturing output fell by 0.9% in April, while services declined by 0.4%. Construction was a bright spot, rising 0.9%, possibly helped by unusually dry weather.
Car production dropped 9.5% in April, likely related to U.S. tariffs. The trade deficit widened from £2.7 billion in March to £5.4 billion in April, primarily due to a 3.4% fall in export values after a surge in exports to the US in Q1.
Professional business output decreased by 2.4%, partly due to reduced conveyancing activity following April’s stamp duty increase. The Office for National Statistics noted that businesses highlighted higher labor costs from the April increase in National Insurance Contributions.
Deutsche Bank (ETR:DBKGn) had expected the economy to flatline in April rather than contract. The bank’s chief U.K. economist noted that the drop in activity was driven by weaker production and a larger-than-expected fall in services.
ING economists pointed out that U.K. GDP figures have been "enormously volatile recently," partly due to front loading activity ahead of tariffs. They also suggested possible seasonal adjustment issues, noting a pattern of stronger first quarters since 2022.
Despite April’s disappointing figures, Capital Economics is not concerned about a recession but expects subdued growth of 1.0% for the year, unchanged from last year and slightly below consensus forecasts.
The Bank of England is unlikely to cut interest rates at its meeting next Thursday, though analysts suggest the weak GDP data could support another rate cut in August.
The economic slowdown presents challenges for Chancellor Rachel Reeves. ING believes the Office for Budget Responsibility will likely revise down its 2026 growth forecast, potentially creating a shortfall of at least £20 billion and increasing the likelihood of tax increases.