‘Awful April’ means UK faces tax rises this Autumn
Following a positive reading in March, ‘Awful April’ has struck again. This is the view of Lindsay James (Investment strategist at Quilter), who was commenting on the country’s latest GDP figures, which were published this week.
The data shows that the UK economy experienced a bigger-than-expected 0.3% contraction in April. Much of this is owed to a combination of increased employer national insurance contributions, minimum wage increases, higher energy prices and the initial effects of President Trump’s tariffs – all of which will have weighed heavily on businesses, said James.
“Consumer demand had generally been holding up better than expected, and businesses may therefore have felt confident enough to pass through ongoing price pressures to their customers. While this may have worked in the past, it seems consumers may have grown more cautious, contributing to this downturn,” she said.
While the economy still grew by 0.7% in the three months to April compared with the previous quarter, the monthly figure may be indicative of more difficulty to come.
The services sector spurred on most of this growth during the period, but in April, it was the largest contributor to the fall in GDP with a fall of 0.4%, caused in part by the pulling forward of house purchases into March to avoid the stamp duty hike. Production output also continued to suffer, falling by a further 0.6% in April after a 0.7% drop in March.
“The data will come as a blow to Rachel Reeves – albeit a somewhat expected one – having just yesterday delivered her spending review,w which promised considerable spending. While the Chancellor laid out her plans to spend (on Wednesday), it was unclear where any cuts would be coming from,” said James.
“Investors have already been highly cynical about the government’s spending plans and its fiscal rules, and today’s figures will likely spur further uncertainty around affordability. With the economy now weakening, we can expect to see concerns around further tax rises increase as we near the autumn budget, which is likely to weigh on growth even more.”
