Economy shrank by 0.3% in April – industry reaction

Latest Office for National Statistics (ONS) data shows that the UK economy shrank by 0.3% in April. This marks a decline on the 0.2% growth recorded in March and is the steepest fall since October 2023. Analysts had forecast a 0.1% decline.

The data shows that the services sector contracted by 0.4% while manufacturing dropped 0.9%. Production output fell 0.6% month-on-month

ONS Director of Economic Statistics Liz McKeown said “The economy contracted in April, with services and manufacturing both falling. However, over the last three months as a whole GDP still grew, with signs that some activity may have been brought forward from April to earlier in the year.

“Both legal and real estate firms fared badly in April, following a sharp increase in house sales in March when buyers rushed to complete purchases ahead of changes to Stamp Duty. Car manufacturing also performed poorly after growing in the first quarter of the year.

“In contrast April was a strong month for construction, research and development and retail, with increases in these only partially offsetting falls elsewhere.

“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.”

Anna Leach, Chief Economist at the Institute of Directors, said “This is a disappointing number and one that incorporates a decline in service sector output for the first time since October 2024. But there are signs that the expiration of the stamp duty holiday in April may be exaggerating the downside surprise in the data. The ONS note that conveyancing and real estate both cited a significant impact from the policy. Meanwhile volatility around so-called “Liberation Day” tariffs may have left a mark too.

“As we head into the second half of the year, momentum from a strong Q1 should provide a bit of a tailwind to growth. But the broader supports to growth are rocky. On the consumer side, while balance sheets are strong and interest rates have come down, rising unemployment risks causing consumers to hit pause on purchases. Businesses report widespread caution in both the UK and globally as heightened uncertainty and the passthrough from a significant rise in the cost and risk of employment play through to sluggish demand. The Spending Review represents a decent allocation of revenues across public service delivery and infrastructure investment, but we await a more comprehensive plan for delivering the UK’s economic renewal which has business at its heart.”

George Lagarias, Chief Economist at Forvis Mazars said “The UK economy shrank more than expected in April, mostly due to significant underperformance in services. However,  we wouldn’t get too worried about this negative print. The 3-month data showed healthy growth. Additionally the Chancellor’s spending review suggests a generous pro-growth government agenda going forward. The Bank of England should be less worried about growth at this point, and more about inflation, especially if the Pound weakens.

Alpesh Paleja, Deputy Chief Economist, CBI, said “After bumper growth at the start of the year, the economy has started off the second quarter on a disappointing note. Weaker momentum is more in line with the picture painted by our own business surveys.

“The sunniest April on record clearly boosted retail sales, but this wasn’t enough to offset drags on activity elsewhere, including some payback from sectors that saw strong growth in March.  In addition, the onset of the US’ “Liberation Day” tariffs; the ensuing volatility in financial markets; and the ramp up in uncertainty may have taken the edge off activity for some businesses.

“The latest data means that, at best, we’re heading for near-stagnation over the second quarter. While we expect some pick-up in growth momentum further ahead, an environment of high uncertainty and cost pressures is still proving a significant headwind to activity.

“Looking ahead, while we expect some growth momentum to be sustained, an environment of high uncertainty and cost pressures is proving a significant headwind to activity. Yesterday’s Spending Review rightly chose to prioritise investment in clean energy and R&D, as well as delivering a much-needed boost to housing, transport, and infrastructure.

“But businesses are labouring under the cumulative burden of rises in NICs and the National Living Wage. With the Autumn Budget now coming sharply into focus, the Chancellor should prioritise squashing tax rumours and speculation that risks stymying confidence and hitting investment plans further.”