LONDON (dpa-AFX) - The UK economy contracted at the fastest pace in 18 months in April as the end of stamp duty holiday, tax hike on businesses and higher US trade tariffs damped the positive momentum seen at the start of the year.
Real gross domestic product declined 0.3 percent month-on-month in April, following a growth of 0.2 percent in March, the Office for National Statistics reported Thursday. This was the biggest fall since October 2023. GDP was expected to drop marginally by 0.1 percent.
The production-side of GDP showed that services output posted its first fall since last October. Output contracted 0.4 percent, offsetting the 0.4 percent rise in March.
Industrial production decreased 0.6 percent, which was slightly slower than a 0.7 percent drop in March. Manufacturing output declined 0.9 percent, following a 0.8 percent drop a month ago.
By contrast, construction output grew at a faster pace of 0.9 percent after rising 0.5 percent in March.
In the three months to April, the economy expanded 0.7 percent from the previous three months largely driven by growth in the service sector. Compared to the previous year, GDP advanced 0.9 percent in April, data showed.
The increase in national insurance and the national living wages coupled with higher tariffs from the US damped domestic activity in April.
Although GDP fell at a faster-than-expected pace in April, these figures have been volatile lately owing to tariff frontloading, coupled with some possible issues with seasonal adjustment, ING economist James Smith said.
After a strong first quarter, a weaker jobs market and economic uncertainty point to more muted growth rates for the remainder of this year, the economist added.
British Chambers of Commerce Research Manager Stuart Morrison said a larger-than-expected fall in UK GDP for April suggests the UK is now turning more squarely into headwinds.
Although UK's partial trade deal with the US has offered some relief, the lowering of tariffs on steel, aluminium and automotives is not yet fully assured and the continued uncertainty will inevitably hamper firms' investment decisions and long-term growth prospects, Morrison noted.
Confederation of British Industry Deputy Chief Economist Alpesh Paleja said the sunniest April on record clearly boosted retail sales, but this was not enough to offset drags on activity elsewhere, including some payback from sectors that saw strong growth in March.
'The latest data means that, at best, we're heading for near-stagnation over the second quarter,' said Paleja.
Another report from the ONS showed that the visible trade deficit widened more than expected in April as exports logged a sharp decline amid a rebound in imports.
After rising for four straight months, exports of goods to the United States decreased by GBP 2 billion, marking the biggest monthly fall since records began in January 1997. The value of goods exports hit the lowest since February 2022.
Similarly, imports of goods from the US decreased GBP 0.4 billion.
'The fall in goods exports to the United States is likely linked to the introduction of trade tariffs on goods imported into the United States,' the ONS said.
The total visible trade deficit rose to GBP 23.2 billion in April from GBP 19.9 billion in the previous month, while it was forecast to rise to GBP 20.8 billion. Exports of goods decreased 8.8 percent, while imports were up 1.2 percent.
The total trade, including goods and services, resulted in a deficit of GBP 7.03 billion compared to a GBP 3.7 billion shortfall in March.
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