Tariffs weigh on UK growth, but outlook not yet doomed

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18-06-2025 13:48

Tariffs weigh on UK growth, but outlook not yet doomed

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Tariffs weigh on UK growth, but outlook not yet doomed

Tough times have arrived for the UK economy. In April 2025, GDP declined by 0.3%, marking the first major sign of weakness triggered by Donald Trump's tariffs. Bank of America (BofA) FX strategists had anticipated softer data than the consensus, but even that proved too optimistic. Still, the picture is not entirely bleak as recovery remains possible.

The weaker GDP reading now risks a downward revision to BofA’s UK growth forecast. In the second quarter of 2025, UK GDP shrank by 0.2%. Notably, the services sector fell by 0.4% in April after 0.4% growth in March, thus highlighting a significant reversal.

A major drag came from professional, scientific, and technical activities, particularly due to weaker performance in legal services and real estate. The slowdown is partly attributed to recent changes in stamp duty and national insurance contributions, which weighed on business activity, according to the UK’s Office for National Statistics.

April also saw a dramatic 8.1% drop in goods exports, with shipments to the US plunging by £2 billion. It is the sharpest monthly decline since February 2022. While the first quarter had seen a rise due to stockpiling ahead of tariffs, those very tariffs are now hitting UK manufacturing and exports hard.

Manufacturing output dropped 0.9%, with machinery, equipment, and chemical production taking the biggest hits. Overall industrial output fell by 0.6%.

Given the Bank of England’s current monetary stance and the uptick in April inflation, a rate cut in June appears unlikely. However, a broader slowdown in growth, easing inflation and wage pressures, a weakening labor market, and possible disinflationary effects from tariffs could eventually push the central bank toward a more dovish pivot.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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