The UK economy shrank by 0.3% in April 2025, marking a slowdown at the start of the second quarter. Both services and production sectors saw declines, while construction grew by 0.9%.
A key factor was the impact of US reciprocal tariffs, which forced manufacturers like Jaguar Land Rover to halt production temporarily. This led to a $2 billion drop in UK goods exports to the US—the largest monthly fall on record.
However, after a trade agreement with the US in May, production is expected to rebound.
Legal and real estate services also slowed after a surge in house sales in March, linked to stamp duty changes. This dip is likely temporary as housing activity recovers.
Despite the tariff-related export drop, the UK’s trade deficit widened to £11.5 billion over three months, with imports outpacing exports. The services trade surplus remained strong, offering some positive news.
Following the data, the pound weakened but stayed above $1.3550. The economic slowdown adds pressure on the UK Chancellor after recent budget backlash. Still, compared to the wider global impact of US policies, the UK’s downturn may be short-lived.
Brent crude oil prices jumped more than $2 per barrel to around $69.30, nearing the $70 mark for the first time since April. The spike was driven by escalating geopolitical tensions in the Middle East, not by changes in supply or demand.
The US is evacuating non-essential embassy staff from Baghdad and military families from Gulf bases amid rising threats from Iran. Iran has warned of attacks on US bases if nuclear talks fail, while unrest reportedly grows within Iran.
Oil prices have risen about 10% over the past month, also supported by a weakening US dollar, which lost ground against major currencies like the euro and yen.
While geopolitical risks often cause short-term price spikes, the rally could slow if tensions ease. Upcoming US economic data, including jobless claims, may further influence oil prices and the dollar.
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