April saw the º£½ÇÊÓƵ economy contract more significantly than foreseen, according to official figures, indicating this year's early momentum has faded.
The Office for National Statistics (ONS) released new data showing a 0.3% contraction, which follows the º£½ÇÊÓƵ's performance of 0.7% growth in the first quarter that ranked it as the fastest-growing G7 economy.
Predictions from city analysts had indicated a minor contraction of 0.1%, based on a Bloomberg survey, as reported by .
Chancellor Rachel Reeves faces a daunting task of fostering higher near-term growth following her £20bn tax increase on businesses, which has increased their costs and compressed profits, especially as economists have again highlighted the need for tax increases to fund the ambitious expenditure plans outlined during the Spending Review.
Liz McKeown, ONS director of economic statistics, remarked: "The economy contracted in April, with services and manufacturing both falling.
"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 in the first quarter of the year."
Additionally, the ONS noted that real GDP is estimated to have grown by 0.7% over the three months leading up to April.
Contrary to broader trends, the º£½ÇÊÓƵ construction sector experienced a boost, seeing growth at 0.9% in April.
Rachel Reeves expressed disappointment at the latest figures but highlighted reforms in the Spending Review as part of her strategy to stimulate higher growth.
She said: "In yesterday's Spending Review we set out how we'll deliver jobs and growth – whether that's improving city region transport, a record investment in affordable homes or funding Sizewell C nuclear power station. We're investing in Britain's renewal to make working people better off."
Reeves is now banking on AI and improved efficiency across the civil service to boost growth, as administration costs were reduced and technology units saw their budgets increase during the Spending Review.
The Chancellor may be hoping that investment in apprenticeships and scientific research will win approval from economists at the Office for Budget Responsibility (OBR), who are anticipated to revise forecasts for the º£½ÇÊÓƵ economy at the Autumn Budget.
Planning reforms and support for additional transport links received backing from the OBR in March, but the fiscal watchdog has not yet formed an opinion on the government's reforms to workers' rights, which several business leaders believe could jeopardise growth ambitions.
Reeves was reminded that she is also subject to the whims of President Trump, as the ONS reported that April witnessed the largest monthly drop on record in goods exports to the US following a tariff dispute.
Yael Selfin, chief economist at KPMG º£½ÇÊÓƵ, has expressed concerns that trade tensions have "weighed on the economy" and that while recent trade deals provide some policy certainty, they are unlikely to prevent "sluggish" growth for the remainder of the year.
Selfin said: "While the recently announced trade deals offer businesses a degree of policy certainty, tariffs on º£½ÇÊÓƵ exports to the US are higher than their pre-April levels. This is expected to act as a headwind for º£½ÇÊÓƵ trade in the medium term.
"A disappointing outcome in the US-EU trade negotiations would likely have adverse spillover effects on the º£½ÇÊÓƵ economy."
Echoing economists' sentiments, government officials, including Keir Starmer, have stated that the º£½ÇÊÓƵ cannot "tax [its] way to growth", amidst warnings that the government may need to address shortfalls worth up to £20bn come autumn.
For the Chancellor, achieving higher growth over the summer is crucial, with hopes that the º£½ÇÊÓƵ economy will bounce back, providing additional funds to be spent on British citizens.
Both the OBR and the Bank of England, which are keeping a close eye on GDP data, currently project º£½ÇÊÓƵ growth to reach one per cent this year.
However, nascent productivity and the potential for President Trump to intensify global trade tensions again could jeopardise government growth plans.
This week, the World Bank issued a stark forecast, predicting that the world economy is set to endure its worst year since the 2008 financial crash, a prospect that is likely to dampen confidence among firms seeking new export opportunities.
Rate reductions at the Bank of England could potentially spur the º£½ÇÊÓƵ economy, yet there are concerns among the rate-setters regarding persistent inflation, which reached 3.4 percent in the year to April.
Paul Dales from Capital Economics said: "The economy will be held back by subdued overseas demand and domestic businesses cutting back on spending to compensate for the rise in costs driven by April's increase in taxes.
"We're still expecting GDP growth of just one per cent for the year as a whole, which would be no better than last year and is a little weaker than the consensus."
