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UK economy shrank in April as tax rises and US tariffs kicked in UK economy shrank in April as tax rises and US tariffs kicked in
(31 minutes later)
The UK economy suffered its worst contraction in almost two years in April as taxes increased for businesses, household bills jumped and exports to the US plunged. The UK economy suffered its worst contraction for a year and a half in April as taxes increased for businesses, household bills jumped and exports to the US plunged.
The economy shrank by 0.3%, more than the 0.1% fall predicted by experts - marking the steepest monthly decline since October 2023The economy shrank by 0.3%, more than the 0.1% fall predicted by experts - marking the steepest monthly decline since October 2023
In April, employers' National Insurance and water, energy and council tax bills all rose, while the introduction of tariffs by President Trump led to the largest monthly fall on record in exports to the US. April saw employers' National Insurance and water, energy and council tax bills all rise, while the introduction of tariffs by President Trump led to the largest monthly fall on record in exports to the US.
The figures come a day after Chancellor Rachel Reeves set out spending plans aimed at boosting growth, with funding increases for the NHS and defence, but budgets squeezed elsewhere.The figures come a day after Chancellor Rachel Reeves set out spending plans aimed at boosting growth, with funding increases for the NHS and defence, but budgets squeezed elsewhere.
The UK government has made growing the economy its main priority in an effort to boost living standards. In the Spending Review, Reeves prioritised ploughing billions into long-term projects, in a bid to boost economic growth and improve living standards.
In her Spending Review on Wednesday, Reeves prioritised long-term investments over day-to-day spending. Many of the chancellor's plans such as new railway lines and the development of new UK nuclear plant Sizewell C will take years, with current day to day spending squeezed.
She said the latest figures on the economy were "clearly disappointing" but added she was "determined to deliver" growth. Economists warned the current weak rate of growth meant Reeves could be forced to raise taxes in the autumn Budget.
A poor month for the services sector, which includes businesses ranging from retail and hospitality to hairdressers and finance, was behind the contraction, along with manufacturing. Reeves acknowledged the latest figures were "clearly disappointing" and refused to rule out tax rises, telling the BBC that "no chancellor is able to write another four budgets in the first year of a government, you know how much uncertainty there is in the world at the moment".
Legal firms and property companies also "fared badly", the Office for National Statistics (ONS) said, following a strong March which saw many homebuyers rushing to complete purchases to avoid stamp duty hikes. Monthly figures on the economy are volatile, and the more stable three-month figure to April showed the economy grew by 0.7%,
Car manufacturing performed poorly too after the introduction of 25% tariffs on vehicles being imported to the US. Cars are the UK's biggest export to the US, with one in eight cars built in Britain sent to the US. Opposition parties said her previous decision to raise employers' national insurance, which took effect in April, was dragging on growth.
"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," said Liz McKeown, director of economic statistics at the ONS. Most economists, politicians, and businesses like to see growth rising steadily.
Monthly growth figures can be volatile and the more stable three-month figure to April showed the economy grew by 0.7%. That's because it usually means people are spending more, extra jobs are created, more tax is paid, and workers get better pay rises.
However, trade data also released on Thursday showed the value of UK exports decreased by some £2.7bn in April, with goods to America alone falling by £2bn. But growth in the UK has been sluggish for many years.
'Challenging' month for businesses The Office for National Statistics said a poor month for the services sector, which includes businesses ranging from shops and restaurants to hairdressers and financial firms, were behind the contraction in April.
Reeves told the BBC that April was a "challenging" month with businesses facing a lot of uncertainty due to the introduction of US tariffs. Legal firms and property companies also "fared badly", it said, following a strong March which saw many homebuyers rushing to complete purchases to avoid stamp duty increases.
However, Conservative leader Kemi Badenoch told the BBC's Today programme that Labour "went after businesses" when it introduced the rise in National Insurance, but declined to say whether the Conservative would reverse the increase. Car manufacturing was also weak after the introduction of 25% tariffs on UK vehicles exported to the US. Cars are the UK's biggest US export, with one in eight cars built in Britain shipped across the Atlantic.
The rate that employers pay rose to 15% from 13.8% in April on a worker's earnings above £175. The threshold at which employers start paying the tax was reduced from £9,100 per year to £5,000. Trade data showed the value of UK exports decreased by some £2.7bn in April, with goods to America alone falling by £2bn.
Firms also faced higher minimum wages and business rates. 'More taxes coming'
The chancellor said that since April, the government had agreed a deal on tariffs with the US and had also made trade agreements with the European Union and India. Shadow chancellor Mel Stride said weak UK growth was down to Reeves's economic choices.
US President Donald Trump has imposed tariffs on many countries since returning to the White House in an attempt to encourage businesses and consumers to buy more American-made goods. "The Chancellor should have taken corrective action to fix the problems she has caused. But instead her Spending Review has all but confirmed what many feared: more taxes are coming."
In April, employers' National Insurance contributions rose to 15% from 13.8% with the threshold for payments reduced from £9,100 per year to £5,000.
Firms also saw minimum wages and business rates go up.
Ollie Vaulkhard, director of Vaulkhard group which owns 17 hospitality venues across Newcastle upon Tyne, said it was under pressure from the increases.
"Each one of those is manageable - you put them all into a pot, ultimately we've got to charge our customers more," he said.
Since April, the government has agreed a deal on tariffs with the US and had also made trade agreements with the European Union and India.
Despite the deal agreed with the US, a 10% import tax still applies to most UK goods entering America.Despite the deal agreed with the US, a 10% import tax still applies to most UK goods entering America.
Tariff reductions agreed on UK car and steel exports have also not yet come into force, with officials working to finalise the deal by 9 July.Tariff reductions agreed on UK car and steel exports have also not yet come into force, with officials working to finalise the deal by 9 July.