Trump announces trade deal with EU following months of negotiations
Investing.com - The U.K. economy bounced back into growth in the first quarter of 2025, the final reading of gross domestic product data confirmed Monday, but uncertain times lie ahead.
Data released earlier Monday by the Office for National Statistics showed that U.K. gross domestic product rose by 0.7% over the first three months of the year on a quarterly basis, year-on-year growth of 1.3%.
This was a welcome result, given the country saw essentially no growth through the second half of last year.
“The U.K. economy roared back to life in the first quarter after stagnating through the second half of last year,” said analysts at ING, in a note.
“Is this a Trump effect? Maybe a bit. Manufacturing was up by 0.8% in the first three months of the year, and we know that transport equipment – the major export to the U.S. – drove the bulk of that growth.”
This changed when April arrived, and U.S. President Donald Trump’s volatile trade policies, dominated by the imposition of tariffs on the majority of his country’s major trading partners, kicked into gear.
U.K. gross domestic product dropped by 0.3% in April on a monthly basis, according to data released earlier this month, a more substantial contraction than the 0.1% drop widely expected.
"After increasing for each of the four preceding months, April saw the largest monthly fall on record in goods exports to the United States with decreases seen across most types of goods, following the recent introduction of tariffs," Liz McKeown, the Office for National Statistics’ director of economic statistics, said.
On 3 June, the OECD published new forecasts for the world economy. The OECD said the outlook is “becoming increasingly challenging”, citing the risk higher trade barriers and elevated policy uncertainty pose to growth.
The OECD slightly lowered its forecasts for U.K. GDP growth in 2025 to 1.3% from 1.4% and downgraded 2026 forecasts to 1.0% from 1.2%, noting adverse effects from heightened trade tensions and uncertainty.
The Bank of England decided earlier this month to keep interest rates unchanged at 4.25%, with headline inflation at 3.4% in May, well above the central bank’s 2% target.
The U.K. central bank projects the rate will climb to 3.7% by September and hold close to 3.5% through the end of the year.
BoE Governor Andrew Bailey said last week that a recent rise in inflation has added to the uncertainty surrounding the outlook for price growth, though he also pointed to signs of easing in the U.K. labor market.
“In recent months, the evidence that slack is opening up has strengthened, especially in the labour market,” Bailey told attendees at a British Chambers of Commerce conference on Thursday.
“But there remain uncertainties around the overall balance between supply and demand in the economy as well as the remaining inflation persistence in the system.”
There was also some good news to digest, with confidence levels among British employers hitting a fresh nine-year high this month as companies became more optimistic about the outlook for the economy, according to a survey published on Monday.
The Lloyds (LON:LLOY) Bank Business Barometer rose by one point to 51%, the highest since November 2015, adding to an 11-point jump in May following a tumble in April when U.S. President Donald Trump announced a big jump in import tariffs, many of which have since been suspended.
The survey’s measure of economic optimism touched a 10-month high, rising by a point after a 16-point increase in May.