Figures from the Office for National Statistics (ONS) revealed that gross domestic product (GDP) – a standard measure of economic growth – fell 0.3% month-on-month in April, following a 0.2% rise in March.
The figures surprised economists, who had been expecting a 0.1 percentage point fall.
Alice Haine, personal finance analyst at DIY investment group Bestinvest, said the news increased the likelihood of an autumn tax raid.
“The latest GDP data will deliver a blow to the Chancellor, just a day after she pledged to spend billions of pounds on public services and infrastructure projects, and will further fuel expectations that she will need to raise taxes again at her next Budget,” she said.
How to get your first-time buyer clients mortgage ready
Sponsored by Halifax Intermediaries
Stamp duty and tariffs cause slowdown
While UK construction grew by 0.9%, the contraction in the economy was caused by a fall in services and production output. Exports also slumped in April, falling by 14.6% in value terms, compared with April 2024.
Experts said one reason for the services fall was the change to stamp duty rules, with a stamp duty reduction for many buyers ending at the end of March and many rushing to complete residential properties before the deadline. The figures show that legal activities were down 10.2% month-on-month in April after the deadline.
But other reasons for the slowdown include the increase in National Insurance for employers and the rise in employment costs from a higher living wage, plus US trade tariffs.
Nicholas Hyett, investment manager at investment group Wealth Club, said: “It looks like work was pulled forward to earlier in the year to avoid those headwinds, and as a result, we’re now seeing the inevitable economic hangover.”
Haine warned that the consequences of economic slowdown will be felt in stagnating wages and higher redundancies, as well as higher taxes, and urged savers and borrowers to prepare.
“Many household budgets are still grappling with the horrible hangover left by the cost-of-living crisis, which is why getting a grip on personal finances as disposable incomes get hit by elevated prices once again and the long-standing freeze to personal tax thresholds is imperative. Whether it’s tackling troublesome debts, setting aside some financial reserves or polishing up a CV, consumers would be wise to get their financial affairs in order to protect against any sudden shocks, such as job loss,” she said.
This article was first published on Mortgage Solutions‘ sister site, YourMoney.com. Read: Economy contracts by 0.3% in blow to Chancellor
