The UK economy contracted sharply in April under the double blow of tax increases and rising energy prices.
Data released on Thursday by the Office for National Statistics showed that the UK’s gross domestic product fell by 0.3% in April on a monthly basis, partially offsetting the 0.7% growth seen in the first three months of the year.
The contraction was more significant than the widely expected 0.1% decline. On an annualised basis, the UK economy grew by 0.9% for the month, down from 1.1% growth recorded in the previous month.
Rachel Reeves announces more funding for defence
UK Chancellor of the Exchequer Rachel Reeves presented her latest spending review on Wednesday, promising to increase funding for government departments alongside significant investment in infrastructure, defence and social housing.
Reeves announced that government department budgets would increase by 2.3% annually in real terms as part of her plan to allocate more than £2 trillion in public spending.
The Bank of England will hold a meeting next week and face a difficult decision after cutting its base rate by 25 basis points to 4.25% in May.
Economic growth has stalled, unemployment is at its highest level since July 2021, but inflation in the UK is above target at 3.5% and is forecast to rise further.
Bank of England Governor Andrew Bailey said last week that the pace of interest rate cuts is now “shrouded in much greater uncertainty,” citing “heightened unpredictability” as US President Donald Trump’s trade tariffs weigh on the global economy.
Nevertheless, the Bank of England is expected to keep its base rate at 4.25%, with markets forecasting two more rate cuts this year — probably in August and then in the last three months of the year — bringing the key rate down to 3.75% by the end of the year.
