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Investing.com -- The UK economy shrank by 0.3% in April, marking the first concrete sign of tariff-related weakness, according to Bank of America, which had expected a softer-than-consensus reading.
The weaker GDP print introduces small downside risks to BofA’s second-quarter GDP growth forecast of 0.2%.
Services fell by 0.4% in April following 0.4% growth in March, making it the largest contributor to the GDP decline with a -0.32 percentage point contribution.
Professional, scientific, and technical activities showed particular weakness due to sluggish legal activities and real estate agencies driven by Stamp Duty changes.
Production decreased by 0.6%, while manufacturing dropped by 0.9%, with notable declines in cars, machinery, equipment, and chemical products.
Goods exports fell dramatically by 8.1% in April, with exports to the United States falling by £2 billion—the largest monthly decrease on record—reaching their lowest level since February 2022.
The decline affected most export categories to the U.S., including machinery, transport, and chemicals. Construction provided the only bright spot, increasing by 0.9%, which partially offset the falls in services and production.
The one-off strength in first-quarter GDP driven by tariff front-running appears to have reversed in April, with tariffs now weighing on UK manufacturing and exports.
The Office for National Statistics indicated that changes to Stamp Duty and the rise in National Insurance Contributions also affected activity in April.
While the impact from Stamp Duty changes should reverse, BofA expects growth to continue facing pressure from U.S. tariffs and higher National Insurance Contributions.
The Bank of England’s gradual guidance and April’s inflation strength make a June interest rate cut unlikely, according to BofA.
However, weaker growth, potential reversal of April’s inflation spike, slowing pay, a looser labor market, and possible disinflationary impact from tariffs could open the door for a dovish shift from the central bank in the second half of the year.
BofA maintains its expectation for interest rate cuts in August, September, and November.
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