UK economy shrinks as tax increases bite
The UK’s economy shrank in April 2025 on the back of tax increases for businesses, higher household bills, and declining trade with the US due to President Donald Trump’s tariff war.
The UK economy contracted by 0.3 per cent in April, more than the 0.1 forecast by most economists, data published by the Office for National Statistics shows. This follows a growth of 0.2% in March 2025.
Real GDP is estimated to have grown by 0.7% in the three months to April 2025, compared with the three months to January 2025, largely driven by growth in the services sector in this period.
Production output fell by 0.6% in April 2025, following a fall of 0.7% in March 2025, but grew by 1.1% in the three months to April 2025.
Looking over the longer term, GDP is estimated to have grown by 1.1% in the three months to April 2025, compared with the three months to April 2024. Over this period, services grew by 1.3%, while production fell by 0.2% and construction output rose by 2.0%.
Tax increases hurt growth
An increase in Stamp Duty Land Tax (SDLT) rates in England and Northern Ireland on 1 April 2025 meant that there was a monthly decrease of 63.5% in UK residential transactions in April 2025, compared with March 2025. This followed a 61.6% rise in monthly UK residential transactions in March 2025 compared with February 2025.
Adding to the pain, April also saw increases for employers’ National Insurance and water, energy and council tax bills. The introduction of tariffs by US President Trump also led to the largest monthly fall on record in US exports.
Comments received by the ONS suggested the change in Stamp Duty Land Tax thresholds for home buyers in England and Northern Ireland affected activity in April. Most notably, conveyancing solicitors and real estate agencies saw a sizeable decline in April as property purchases were completed ahead of the changes.
Businesses from a range of industries provided comments citing the National Insurance Contribution changes on 6 April and also, for those who export to United States of America, the possibility of tariff changes on exports. This is further supported by recent Business Insights and Conditions survey data.
In late April, 17% of businesses with 10 or more employees reported that they expect to be affected by the United States tariffs in the next month. The most reported expected impacts were reduced demand and having to pass on additional costs to customers, both at 7%.
On a similar note, in late May 2025, over three-quarters (77%) of businesses with 10 or more employees reported that their staffing costs (including wages, bonuses, national insurance (NI) and pension contributions) had increased over the last three months. This is up 41 percentage points, compared with late February 2025, and up 17 percentage points compared with a year ago.
